T 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 


HORNBOOK  CASE  SERIES 


ILLUSTRATIVE    CASES 


ON 


INSURANCE 


By  ROGER  W.  COOLEY 

Professor  of  Law,  University  of  North  Dakota 

Author  of  "Briefs  on  the  Law  of  Insurance;"  "Illustrative  Cases  on 
Damages;"  "  Illustrative  Cases  on  Persons  and  Domestic  Relations  ' 


A  COMPANION   BOOK  TO  VANCE  ON   INSURANCE 


St.  Paul,  Minn. 
WEST   PUBLISHING    CO. 

1912 


Copyright,  1912 

BY 

WEST  PUBLISHING  COMPANY 


(CooLEY  Ins.) 

T 


THE  HORNBOOK   CASE   SERIES 


It  is  the  purpose  of  the  publishers  to  supply  a  set  of  Illustrative 
Casebooks  to  accompany  the  various  volumes  of  the  Hornbook  Series, 
to  be  used  in  connection  with  the  Hornbooks  for  instruction  in  the 
classroom.  The  object  of  these  Casebooks  is*  to  illustrate  the  prin- 
ciples of  law  as  set  forth  and  discussed  in  the  volumes  of  the  Horn- 
book Series.  The  text-book  sets  forth  in  a  clear  and  concise  manner 
the  principles  of  the  subject;  the  Casebook  shows  how  these  princi- 
ples have  been  applied  by  the  courts,  and  embodied  in  the  case  law. 
With  instruction  and  study  along  these  lines,  the  student  should  se- 
cure a  fundamental  knowledge  and  grasp  of  the  subject.  The  cases 
on  a  particular  subject  are  sufficiently  numerous  and  varied  to  cover 
the  main  underlying  principles  and  essentials.  Unlike  casebooks 
prepared  for  the  "Case  Method"  of  instruction,  no  attempt  has  been 
made  to  supply  a  comprehensive  knowledge  of  the  subject  from  the 
cases  alone.  It  should  be  remembered  that  the  basis  of  the  instruc- 
tion is  the  text-book,  and  that  the  purpose  of  these  Casebooks  is  to 
illustrate  the  practical  application  of  the  principles  of  the  law. 

West  Publishing  Company. 
(iii)* 


729227 


TABLE  OF  CONTENTS 


THE  NATURE  AND  REQUISITES  OF  THE  CONTRACT 

Page 

I.  The  Nature  of  the  Insurance  Contract  In  General 1 

II.  A  Personal   Contract  Uberrimge   Fidei 10 

1.  In    General 10 

2.  Contracts  of  Fire  Insurance  Not  Ordinarily  Assignable 15 

III.  A  Contract  Essentially  of  Indemnity 1'^ 

IV.  The  Nature  of  the  Contract  of  Life  Insurance 19 

V.  The  Nature  of  Mutual  Benefit  Insurance -- 

VI.  The  Contract  of  Reinsurance 2.5 

VII.  When  the  Contract  is  Divisible 36 

PARTIES 

I.     Contracts  Made  by  Insurers  Not  Complying  with  Statutory  Re- 
quirements     ^4 

II.     Infants  as  Parties  Insured 60 

INSURABLE  INTEREST 

I.     General  Theory  of  Insurable  Interest CS 

II.  Insurable  Interest  in  Property — What  Constitutes 71 

III.  Duration  of  Interest "7 

IV.  Insurable  Interest  in  Lives 78 

V.     Interest  of  Creditor  in  Life  of  Debtor 01 

VI.  Interest  of  Assignee  of  a  Life  Policy 95 

THE  MAKING  OF  THE  CONTRACT 

I.     In  General — Offer  and  Acceptance 90 

II.    The  Form  Required — Oral  Contracts 101 

III.  Delivery    112 

IV.  Payment  of  First  Premium 115 

V.     What  Papers  Form  the  Written  Contract 127 

VI.     Same — Mutual   Benefit  Insurance 130 

THE  CONSIDERATION— PREMIUMS  AND  ASSESSMENTS 

I.     In  General — Nature  of  the  Obligation 13S 

II.     When  the  Premium  is  a  Debt 115 

III.  Payment  of  Premiums US 

1.  To  Whom  Paid 148 

2.  Time  and   Mode  of   Payment 151 

IV.  Forfeiture    1G3 

V.     Excuses  for  Nonpayment 16G 

VI.     Notice  of  Premiums  Due 172 

VII.  Paid-up  Policies  and  Extended  Insurance 17S 

VIII.  Dues  and  Assessments  in  Mutual  Benefit  Societies 181 

CooLEY  Ins.  (v) 


vi  TABLE   OF   CONTENTS 

THE  CONSENT  OF  THE  PARTIES— CONCEALMENT 

Page 

I.     Wbat  Must  be  Disclosed 190 

II.     When  Facts  Concealed  are  to  be  Deemed  Material 197 

THE  CONSENT  OF  THE  PARTIES— REPRESENTATIONS  AND 

WARRANTIES 

I.     The  Nature  and  Effect  of  Representations 199 

II.     Promissory    Representations 202 

III.  Construction  of  Representations 205 

IV.  Warranties— In    General 214 

"V.     Affirmative  and  Promissory  Warranties 218 

VI.     Warranties  Distinguished  from  Representations 223 

INSURANCE  AGENTS  AND  THEIR  POWERS 

I.     The  Doctrine  of  Agency  in  Insurance  Law 232 

1.  In    General 232 

2.  Apparent    Powers 234 

II.     Classes  of  Agents  and  Their  Powers 237 

III.     Limitations  upon  the  Powers  of  Ag:ents 243 

1.  Improper  Limitations  in  General 243 

2.  Stipulation  that   Agent  Taking  Application   is  Agent  of  In- 

sured      246 

3.  Stipulation  that  Insurer  Shall  Not  be  Charged  with  Knowl- 

edge of  Agent 248 

WAIVER  AND  ESTOPPEL 

I.  General    Principles 254 

II.  Prior  Parol  Waivers 257 

III.  Subsequent  Parol  Waivers 261 

IV.  Contemporaneous  Parol   Waivers 272 

V.  What  Constitutes  a  Waiver 279 

RIGHTS  UNDER  THE  POLICY 

I.     Vested  Rights  of  the  Beneficiary 282 

1.  In    General 282 

2.  Effect  of  Murder  of  Insured  by  Beneficiary 284 

II.     Beneficiaries  in  Mutual  Benefit  Associations 286 

1.  In    General 28G 

2.  Change  of  Beneficiary 288 

HI.     Policy  Payable  to  a  Third  Person 293 

IV.     The  Rights  of  the  Assignee 301 

V.     Rights  of  Mortgagor  and  Mortgagee 303 

VI.     Subrogation    306 

r  THE  STANDARD  FIRE  POLICY 

I.     The  General  Rule  of  Construction 314 

II.     Effect  of  Temporary  Breach  of  Condition 321 

III.     The  Subject  of  Insurance — Location 325 


TABLE   OF   CONTENTS  Vll 

Page 

IV.     The  Interest  of  the  Insured 327 

V.     Change  of  Interest,  Title,  or  Possession 337 

VI.     Other    Insurance 343 

VII.     Increase  of  Risli 3^0 

VIII.     Assignments    3u4 

IX.     Explosive  and  Inflammable  Substances 356 

X.     Vacant  or  Unoccupied  Buildings 358 

XI.     Collapse  of  Building 361 

XII.     Liability  of  the   Insurer 3G1 

XIII.  Measure  of  Insurer's  Liability 3G9 

XIV.  Cancellation  of  Policy 373 

XV.    Notice  and  Proofs  of  Loss 379 


TERMS  OF  THE  LIFE  POLICY 

I.    Designation   of  Beneficiary 384 

II,     Suicide — When  Not  Excepted  in  the  Policy 387 

III.  Suicide — When  Excepted  in  the  Policy 391 

IV.  Death  in  Violation  of  Law 394 

V.     Incontestable   Clause 401 


MARINE  INSURANCE 

I,     Implied    Exceptions 408 

1.  Seaworthiness    408 

2.  Deviation    409 

11.     Perils  of  the  Sea 413 

III.  Particular  and  General  Average  Losses 420 

1.  In    General 420 

2.  General    Average 422 

3.  Particular    Average 426 

IV.  The  Insurer's  Liability — Total  Loss 432 

V.     Abandonment    442 


ACCIDENT  INSURANCE 

I.  Accidental  Injuries — External,  Violent,  and  Accidental  Causes...  443 

II.     External  and  Visible  Signs  of  Injury 450 

III.  Poison  or  Contact  with  Poisonous  Substances 453 

IV.  Inhaling    Gas 454 

V.     A^oluntary  and  Unnecessary  Exposure  to  Injury 458 

VI.     Occupation  and  Employment 462 

VII.     Liability  of  the  Insurer— Total  Disability 466 


GUARANTY,   CREDIT,   AND  LIABILITY   INSURANCE 

I.     Fidelity  and  Guaranty  Insurance 470 

II.     Credit    Insurance 474 

III.  Employer's  Liability  Insurance 47& 

IV.  Rights  of  Injured  Person  in  Insurance  Fund 482 


TABLE   OF    CASES 


Page 
Alabama  State  Mut.  Assur.  Co.  v. 

Long  Clothing  &  Shoe  Co 255 

American      Employers'      Liability 

Ins.   Co.   V.   Barr 239 

American  Fire  Ins.  Co.  v.  Brooks  148 
Anderson  v.  Life  Ins.  Co.  of  Vir- 
ginia      284 

Bain  v.  Atkins 482 

Baldwin  v.  Connecticut  Mut.  Life 

Ins.    Co 232 

Bassett  v.  Farmers'  &  Merchants' 

Ins.    Co 72 

Bigelow  V.  Berkshire  Life  Ins.  Co.  391 
Breeyear    v.    Rockingham    Farm- 
ers' Mut.  Fire  Ins.  Co 354 

Calmenson  v.  Equitable  Mut.  Fire 

Ins.   Co 257 

Cannon    v.    Phoenix    Ins.    Co.    of 

Hartford,    Conn 361 

Carpenter     v.     German-American 

Ins.    Co 71 

Central  Nat.  Bank  v.  Hume 293 

Chamberlain  v.  Butler 95 

Chambers   v.    Northwestern    ^lut. 

Life   Ins.    Co 216 

Champion  Ice  Mfg.  &  Cold  Stor- 
age Co.  V.  American  Bonding  & 

Trust    Co 470 

Chickasaw  County  Farmers'  Mut. 

Fire  Ins.  Co.  v.  Weller IS,  307 

Clark  V.   Schromyer 145 

Clay  V.  Phoenix  Ins.  Co 314 

Clinton  v.  Norfolk  Mut.  Fire  Ins. 

Co 68 

Coleman  v.  New  Orleans  Ins.  Co.     39 
Collins  V.  Metropolitan  Life  Ins. 

Co 394 

Commercial  Fire  Ins.  Co.  v.  IMor- 

ris    109 

Connecticut  Mut.  Life  Ins.  Co.  v. 

Luchs    87 

Coster  V.  Phoenix  Ins.  Co 420 

Cronin  v.  Vermont  Life  Ins.  Co . .     85 


Daniher  v.  Grand  Lodge  A.  O.  U. 
W 22 

CooLEY  Ins.  (ix) 


Page 
Davis  &  Co.  V.  Insurance  Co.  of 

North    America 315,  361 

Dibble  v.  Northern  Assur.  Co.  of 

London    112 

Dickerman  v.  Vermont  Mut.  Fire 

Ins.  Co 77 

Diddle    v.    Continental    Casualty 

Co.    458 

Dilling  V.  Draemel 306 

Dodge  V.  Boston  Marine  Ins.  Co..  408 

Eddy  V.  London  Assur.  Corp 345 

Farmers'  Feed  Co.  of  New  Jersey 
V.    Scottish   Union  &   Nat.   Ins. 

Co.  of  Edinburgh 369 

Farnum  v.  Phenix  Ins.  Co 121 

First  Congregational  Church  of 
Rockland  v.  Holyoke  Mut.  Fire 

Ins.    Co 350 

Forward  v.  Continental  Ins.  Co..  274 
Freedman  v.  Fire  Ass'n  of  Phila- 
delphia       199 

Fuller  V.  Metropolitan  Life  Ins. 
Co 138 

Gaines  v.  Fidelity  &  Casualty  Co. 

of  New  York 214 

German-American     Ins.      Co.      v. 

Humphrey    261 

Germania  Ins.  Co.  v.  Bromwell.  .  258 

Goodrich,  Appeal  of 25 

Grubbs  r.   North   Carolina   Home 

Ins.    Co 264 

Guilfoyle  v.  National  Life  Ass'n..  155 
Gurnett  v.  Atlas  Mut.  Ins.  Co. . .  272 

Haider  v.  St.  Paul  Fire  &  Marine 
Ins.   Co 334 

Hayes  v,  ]Milford  Mut.  Fire  Ins. 
Co 349 

Hearn  v.  New  England  Mut.  Ma- 
rine Ins.  Co 409 

Hicks  V,  British  American  Assur. 
Co 101 

Hinckley  v.  Germania  Fire  Ins. 
Co 321 


TABLE    OF    CASES 


Page 
Hoeft  V.  Supreme  Lodge  Knights 

of    Honor 286 

Ilogan,  In  re 1 

Home  Fire  Ins.  Co.  v.  Peyson . . .  358 

Home  Ins.  Co.  v,  Marshall 303 

Horton  v.  Home  Ins.  Co 316 

Johannes  v.    Phoenix   Ins.   Co.    of 

Brooklyn,  N.  Y 28 

Johannes  v.  Standard  Fire  Office 

of   London 331 

John   Davis   &   Co.   v.    Insurance 

Co.  of  North  America 315,  361 

Johnson    v.     Northwestern    Mut. 

Life   Ins.    Co 60 

Jones  V.  Western  Assur.  Co 432 

Kausel     v.     Minnesota     Farmers' 

Mut.  Fire  Ins.  Ass'n 246 

Kase  V.  Hartford  Fire  Ins.  Co. . .  17 
Kenyon    v.    Knights    Templar    & 

Masonic   Mut.   Aid  Ass'n 151 

Kimball  v.  2Etna  Ins.  Co 202 

Knapp  V.  Homoeopathic  Mut.  Life 

Ins.   Co 178 

Kneeht   v.   Mutual   Life   Ins.    Co. 

of  New  York 218 

Lamberton  v.  Connecticut  Fire 
Ins.    Co 243 

Lane  v.  Parsons,  Rich  &  Co 327 

Life  Ins.  Clearing  Co.  v.  O'Neill..     81 

Lobdill  V.  Laboring  Men's  Mut. 
Aid  Ass'n  of  Chatfield,  Minn. .  .  466 

Loudon  Assur.  Corp.  v.  Thomp- 
son         32 

Lynch  v.  Prudential  Ins.  Co.  of 
America     226 

Lyons  v.  Yerex 384 

McGowan  v.  Supreme  Court  I.  O. 
O.    F 290 

Maryland  Casualty  Co.  v.  Hud- 
gins 443.   453 

Mascott  V.  First  Nat.  Fire  Ins. 
Co 197 

Mason  v.  St.  Paul  Fire  &  Ma- 
rine   Ins.    Co 380 

Massachusetts  ]\Iut.  Ben.  Life 
Ass'n  V.  Robinson 401 

Menneilley  v.  Employers'  Liabili- 
ty Assur.   Corp 454 

Metcalf  V.  Phenix  Ins.  Co 254 


Pago 
Michigan    Mut.    Life    Ins.    Co.    v. 

Bowes     161 

Miller  v.  California  Ins.  Co 417 

Morris  v.   Georgia  Loan,   Savings 

&  Banking  Co 301 

Moulor    V,     American     Life    Ins. 

Co 205 

Murray    v.    Great    Western    Ins. 

Co 436,    442 

Mutual  Life  Ins.  Co.  v.  Cohen...  172 
Mutual    Life    Ins.    Co.    of    New 

York  V.  Blodgett 90 

Mutual  Life  Ins.  Co.  of  New  York 

V.    Mullen 211 

Mutual  Safety  Ins.  Co.  v.  Cargo 

of   the   George 422 

New  V.  German  Ins.  Co.  of  Free- 
port    15 

New  York  Life  Ins.  Co.  v.  Stat- 
ham    140 

Norwich  Union  Fire  Ins.  Soc.  v. 
Standard  Oil  Co 310 

Nye  V.  Grand  Lodge  A.  O.  U.  W., .     19 

O'Brien  v.  New  Zealand  Ins.  Co.  241 
O'Connor    v.    Queen    Ins.    Co.    of 
America    364 

Penn  Mut.  Life  Ins.  Co.  v.  Me- 
chanics'    Sav.    Bank    &    Trust 

Co 190 

Pennypacker  v.  Capital  Ins.  Co. . .  54 
Perry  v.  Bankers'  Life  Ins.  Co. . .  163 

Perry  v.    Cobb 413 

Phoenix    Ins.     Co.     of    Hartford, 

Conn.,    V.    Ireland 106 

Port  Blakely  Mill  Co.  v.  Spring- 
field Fire  &  Marine  Ins.  Co 220 

Quarles  v.  Clayton 10 

Reynolds  v.   Atlas   Ace.    Ins.   Co. 

of    Boston 127 

Reynolds  v.    Supreme   Council  of 

Royal    Arcanum 132 

Ricker  v.  Charter  Oak  Life  Ins. 

Co 282 

Riggs    V.    Commercial    Mut.    Ins. 

Co 74 

Rittler  V.    Smith 91 

Ruggles    V.    American    Cent.    Ins. 

Co.  of  St.   Louis 234 

Rnpp  V.  Western  Life  Indemnity 

Co 78 


TABLE    OF   CASES 
Page 


Salisbury  v.  Hekla  Fire  Ins.  Co. 
of   Madison,    Wis Ill 

Sanborn  v.   Black 28S 

Seal  V.  Farmers'  &  Merchants' 
Ins.    Co 200 

Seamans  v.  Christian  Bros.  Mill 
Co 57 

Seller  v.  Economic  Life  Ass'n  of 
Clinton    387 

Sergent  v.  London  &  Liverpool  & 
Globe  Ins.   Co 379 

Shakman  v.  United  States  Credit 
System    Co 474 

Shimp  V.  Cedar  Rapids  Ins.  Co..  .  279 

Simpson  v.  Prudential  Ins.  Co.  of 
America    66 

Southern  Fire  Ins.  Co.  v.  Knight..     36 

Stage  V.  Home  Ins.  Co.  of  City 
of  New  York 343 

State  V.  Beardsley 5 

State  V.  Towle ^ 

Stephens  v.  Pennsylvania  Casual- 
ty   Co 479 

Sternaman  v.  Metropolitan  Life 
Ins.    Co 248 

Stinchcombe  v.  New  York  Life 
Ins.    Co 157 

Supreme  Lodge  Knights  of  Pythi- 
as V.  Withers 181 

Supreme  Lodge  of  Sons  &  'Daugh- 
ters of  Protection  v.  Under- 
wood      130 

Taylor  v.  Anchor  Mut.  Fire  Ins. 

Co 49 

Taylor  v.  Insurance  Co.  of  North 

America    373 


Page 


Thompson   v.  Knickerbocker  Life 

Ins.    Co 166 

Tomsecek  v.  Travelers'  Ins.  Co. . .  116 
Trabue    v.    Dwelling    House    Ins. 
Co 44 

Union  Casualty  &  Surety  Co.  v. 
Mondy    450 

Union  Cent.  Life  Ins.  Co.  v.  Tag- 
gart    115 

Union  Mut.  Ace.  Ass'n  v.  Fro- 
hard   462 

Village  of  L'Anse  v.  Fire  Ass'n 
of    Philadelphia 325 

Yivar  v.  Supreme  Lodge  Knights 
of    Pythias 223 

Washburn    &    Moen    ^Ifg.    Co.    v. 

Reliance  Marine  Ins.  Co 426 

Western     Commercial    Travelers' 

Ass'n  V.   Smith 446 

Western  Home  Ins.  Co.  v.  Hogue. .  237 
Wiebeler  v.  Milwaukee  Mechan- 
ics' Mut.  Ins.  Co 108 

Wild   Rice  Lumber  Co.   v.   Royal 

Ins.  Co.  of  Liverpool 317 

Williams   v.    Maine    State   Relief 

Ass'n    267 

Wolf    V.    Theresa    Village    Mut. 

Fire   Ins.    Co 337 

Wood  V.   American  Fire  Ins.   Co. 

of    Philadelphia,    Pa 339 


Yoch  V.  Home  Mut.  Ins.  Co. 


356 


Zimmermann   v.    Dwelling   House 
Ins.  Co.  of  Boston 99 


1 


HORNBOOK  CASES 

ON  THE 

LAW    OF    INSURANCE 


THE   NATURE   AND    REQUISITES    OF   THE   CONTRACT 
I.  The  Nature  of  the  Insurance  Contract  In  General  ^ 


In  re  HOGAN. 

(Supreme  Court  of  North  Dakota,  1S99.     8  N.  D.  301,  78  N.  W.  1051,  45  L. 

R.   A.   166,  73  Am.   St.  Rep.   759.) 

Bartholomew,  C.  J.^  One  C.  N.  Hogan  presented  to  this  court 
his  petition  for  a  writ  of  habeas  corpus,  alleging  that  he  was  un- 
lawfully restrained  of  his  liberty  by  the  sheriff  of  Foster  county^ 
in  this  state.  His  petition  sets  forth  that  he  was  arrested  upon  a 
warrant  issued  by  a  justice  of  the  peace  of  said  county,  which  said 
warrant  was  based  upon  a  complaint  duly  laid  before  said  justice 
by  one  Ferguson,  wherein  said  petitioner  was  accused  of  having 
acted  as  agent  for  an  insurance  company  without  having  procured 
the  certificate  required  by  section  3124,  Rev.  Codes  of  this  state, 
that  a  preHminary  hearing  was  duly  had  before  said  justice,  and  that 
upon  such  hearing  said  justice  adjudged  that  the  petitioner  be  held 
to  answer  to  said  charge  before  the  district  court  of  said  county,  and 
fixed  his  appearance  bond  at  the  sum  of  $500,  which  the  petitioner 
failed  to  give,  whereupon  he  was  duly  committed  to  the  custody  of 
said  sheriff,  and  was  by  him  restrained.     *     *     * 

No  point  is  made  by  petitioner  as  to  the  regularity  of  any  of 
the  proceedings  that  led  up  to  his  incarceration.  They  are  concededly 
regular.  It  is  admitted,  also,  that  petitioner  was  soliciting  business 
as  agent  for  a  corporation  known  as  the  Realty  Revenue  Guaranty 

1  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  22,  23.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  2-38. 

2  Part  of  the  opinion  is  omitted. 

Cooley  Ins. — 1 


i  THE   NATURE   AND    REQUISITES   OF   THE    CONTRACT 

Company,  of  Minneapolis,  Minn.  It  is  admitted  that  petitioner  never 
procured  the  certificate  of  authority  specified  in  said  section  3124, 
and  that  he  took  an  application  from  the  complaining  witness  in 
form  as  set  forth  in  the  evidence,  and  procured  for  said  witness 
the  contract  of  said  company  as  set  out  in  the  evidence,  and  took 
the  promissory  note  of  the  witness,  secured  by  chattel  mortgage,  for 
the  consideration  mentioned  in  said  contract.  These  admissions  leave 
but  one  question  for  our  determination:  Is  or  is  not  the  Realty 
Revenue  Guaranty  Company,  in  fact  or  in  efifect,  an  insurance  com- 
pany? If  it  be,  then  clearly  the  petitioner  was  properly  held;  other- 
wise, he  should  be  discharged.  While  the  attorneys  representing 
l.he  state  claim  that  the  oral  evidence  in  the  record  strengthens  their 
claim  that  said  corporation  is  in  fact  an  insurance  company,  yet  we 
shall  rest  our  conclusions  on  this  point  upon  the  documentary  evi- 
dence. 

Our  statute  (section  4441,  Rev.   Cod°s)  defines  insurance  as  fol- 
lows:   "Insurance  is  a  contract  whereby  one  undertakes  to  indemnify 
another  against  loss,  damage  or  liability  arising  from  an  unknown 
or  contingent  event."     Necessarily,  in  defining  insurance  in  a  single 
sentence,  only  the  most  general  terms  can  be  used,  and  any  general 
definition   must   be  extended   to  cover   the   ever-changing  phases    in 
which  the  subject  is  presented  to  the  public.     Fifty  years  ago  it  was 
thought  that  a  single  chapter  in  any  work  on  contracts  could  exhaust 
the  law  of  insurance.     Now  Mr.  Joyce  presents  the  subject  in  four 
elaborate  volumes,  showing  the  immense  development  of  that  branch 
of  the  law.     Mr.  Joyce  expressly  defines  one  line  of  insurance  as 
guaranty   insurance.     See   1  Joyce,  Ins.   §§   12,   13.     True,  guaranty 
insurance,    as   there   defined,    relates    more    particularly    to    guaranty 
against   loss   by    reason   of    breaches   of    contract,    such    as    "fidelity 
guaranty"    and    "credit   guaranty."      But    we    have    real    estate    title 
guaranty   insurance;     and,   while   perhaps   this   is   the   first    instance 
where  an  attempt  has  been  made  to  guaranty  a  realty  revenue,  yet 
as  the  revenue  arising  from  that  class  of  realty  here  involved,  i.  e. 
farming  lands,  is  affected  by  so  many  contingencies,  such  as  winds, 
hail,    frost,    drought,    ravages   of   insects,   etc. — contingencies    which, 
while  not  likely  to  happen,  yet  such  as  may  occur — it  would   seem 
that  inherently  it  would  be  a  proper  subject  for  insurance,  perhaps 
even  an  inviting  field.     In  this  record  we  find  a  copy  of  the  articles 
of   incorporation  of  the  Realty  Revenue   Guaranty   Company.     The 
second   article   sets    forth   the   general   business   of    the   corporation, 
naming  a  number  of  things  that  it  is  organized  for  the  purpose  of 
doing,  and,  among  others,  "to  guaranty  certain  rental  and  produce 
income  from  lands  and  tenements." 

The  petitioner,  as  agent  for  said  company,  took  from  Peter  Fergu- 
son an  application  for  a  contract.  The  application  was  upon  a 
printed  form,  headed,  in  bold  type,  "Realty  Revenue  Guaranty  Com- 
pany, of  Minneapolis,  Minn.     Capital  stock,  $100,000."     Then   fol- 


THE    NATURE    OF   THE   INSURANCE    CONTRACT   IN    GENERAL  3 

lows  the  printed  portion,  which  reads :    "I,  ,  of  P.  O., 

county  of  ,   state  of  ,  do  hereby   apply  to  the   Reahy 

Revenue  Guaranty  Company  for  an  option-sale  contract  of  $ 

per  acre,  which  is  hereby  referred  to  and  made  a  part  hereof,  sub- 
ject to  all  conditions  therein  contained  upon  all  crops  raised  on  the 
following  described  lands."  Then  follows  a  description  of  the  land, 
and  various  questions  to  be  answered  by  the  applicant  as  to  whether 
he  is  owner  or  tenant  of  the  land,  and  what  interest  he  has  in  the 
crop,  what  the  land  yielded  per  acre  the  year  before,  nature  of  the 
soil,  etc. — all  to  be  signed  by  the  applicant. 

Upon  this  application,  Ferguson  received  a  contract,  w'hich  we 
copy  in  full :  "This  agreement,  made  by  and  between  the  Realty 
Revenue  Guaranty  Company,  of  Minneapolis,  Minnesota,  and  Peter 
Ferguson,  of  Carrington  P.  O.,  county  of  Foster,  and  state  of  North 
Dakota,  party  of  the  second  part,  witnesseth  that,  in  consideration 
of  an  application  for  this  contract,  which  is  hereby  referred  to  and 
made  a  part  hereof,  and  the  payment  of  the  sum  of  $55,  according 
to  the  conditions  of  a  certain  promissory  note  for  said  amount,  by 
said  party  of  the  second  part,  the  above-named  Realty  Revenue 
Guaranty  Company  agrees  to  purchase  the  entire  crop  of  small 
grain,  consisting  of  wheat,  oats,  flax,  barley,  corn,  or  rye,  from  said 
party  of  the  second  part,  at  the  rate  of  $5.00  per  acre,  grown  during 
the  season  of  1899 ;  all  of  said  crops  being  on  the  following  described 
lands,  to  wit,  160  acres  southeast  quarter  Sec.  20,  T.  146,  R.  65 ; 
60  acres  northwest  quarter  Sec.  26,  T,  146,  R.  65.  It  is  further 
agreed  that  said  party  of  the  second  part  is  in  no  manner  bound 
to  sell  said  crops  to  the  said  Realty  Revenue  Guaranty  Company, 
except  at  his  own  option.  It  is  further  agreed  that  said  party  of 
the  second  part  shall  cultivate  said  crops  in  a  husbandlike  manner, 
sow,  plant,  garner,  gather,  harvest,  thresh,  and  otherwise  care  for 
said  crops  in  due  season  and  in  an  economical  manner.  Said  party 
of  the  second  part  agrees  to  notify  said  Realty  Revenue  Guaranty 
Company  in  case  of  any  damage  to  said  crops  within  five  days 
thereafter,  and  of  his  intention  to  avail  himself  of  his  option  to  sell 
before  said  crops  are  harvested,  and  shall,  within  five  days  after 
threshing  the  same,  give  notice  to  the  company  of  his  election  to 
sell  under  this  contract.  After  said  election  to  sell,  said  party  of 
the  second  part  agrees  to  deliver  said  crops  at  the  nearest  market, 
if  directed  so  to  do  by  said  Realty  Revenue  Guaranty  Company. 
Should  the  party  of  the  second  part  fail  to  perform  any  of  the  con- 
ditions herein  by  him  to  be  performed,  time  being  the  essence  hereof, 
or  if  any  of  the  warranties  or  statements  made  by  him  are  untrue, 
the  said  option  shall  terminate.  Nor  shall  said  guaranty  company 
be  liable  under  this  contract  should  any  damage  or  loss  accrue  to 
said  crops  after  September  15  of  this  year,  or  after  said  crops  are 
harvested,  nor  in  any  manner,  except  as  herein  stipulated.  This 
contract   shall   terminate  December   1st   following   date   hereof.      In 


4  THE    NATURE   AND    REQUISITES   OF   THE   CONTRACT 

witness  whereof,  the  said  Realty  Revenue  Guaranty  Company  has 
caused  these  presents  to  be  executed  and  signed  by  its  president  and 
secretary,  and  caused  its  corporate  seal  to  be  hereto  attached,  this 
seventh  day  of  April,  1899.  Realty  Revenue  Guaranty  Co.,  by  L.  E. 
Utley,  President.     A.  L.  Brice,  Secretary.      [Corporate  Seal.]" 

What  was  the  object  of  this  contract  and  what  was  its  legal  effect? 
The  petitioner  says  it  was  an  option  contract  of  sale  of  a  crop.  We 
cannot  conceive  that  the  farmer's  primary  object  was  to  sell  his  crop. 
Ordinarily  a  man  does  not  pay  a  premium  for  the  privilege  of  sell- 
ing his  produce.  Nor  was  it  the  primary  purpose  of  the  company 
to  purchase  the  crop.  From  the  very  terms  of  the  contract,  it  is  cer- 
tain that  it  must  lose  money  upon  all  the  grain  it  buys  under  the  con- 
tract. Moreover,  grain  is  bought  and  sold  by  the  bushel,  and  not  by 
the  acre.  We  think  the  contract  was  the  identical  contract  which 
the  articles  of  incorporation  authorize  the  company  to  enter  into.  It 
was  a  contract  by  which  the  guarantor  undertook  to  guaranty  or  as- 
sure to  the  farmer  a  certain  revenue  from  his  land.  How  did  the 
parties  proceed  to  execute  such  a  contract?  It  was  well  known  to 
both  parties  that  an  acre  of  land  in  this  state,  farmed  as  the  farmer 
contracts  to  farm  it  in  this  case,  will  produce  a  crop  of  a  value  far  in 
excess  of  five  dollars,  and  the  value  can  be  reduced  to  or  below  that 
figure  only  by  the  happening  of  one  or  more  of  the  contingencies 
hereinbefore  mentioned.  But  such  contingencies  may  happen,  and  to 
be  absolutely  assured  that  his  land  will  yield  him  at  least  five  dollars 
per  acre  the  farmer  is  willing  to  pay  something;  and  the  corporation, 
expecting  to  do  business  over  a  wide  scope  of  country,  believes  that 
it  can  with  profit  to  itself  assure  the  farmer  a  crop  worth  five  dol- 
lars per  acre  for  the  compensation  which  the  farmer  is  willing  to  pay 
therefor.  But  what  is  this  in  substance  except  a  contract  to  indem- 
nify the  farmer  against  loss  arising  from  the  happening  of  a  con- 
tingent event,  and  that  is  our  statutory  definition  of  insurance.  The 
farmer  was  seeking  and  paying  for  protection,  and  the  corporation 
was  seeking  to  make  a  profit  by  extending  this  protection  for  the 
consideration  paid  by  the  farmer.  True,  it  is  not  all  loss  that  is  in- 
sured against.  The  contingencies  named  may  reduce  the  value  of 
a  crop  from  twenty  dollars  per  acre  until,  in  the  judgment  of  the 
owner,  it  barely  exceeds  five  dollars  per  acre,  and  there  is  no  liability 
under  the  contract.  It  is  the  loss  below  five  dollars  per  acre  that  is 
insured  against.  The  effect  of  the  contract  is  very  like  that  of  a  val- 
ued policy  of  insurance.  When  the  contingency  happens  that  creates 
a  liability  under  the  policy,  then  the  full  amount  of  the  policy  must 
be  paid,  but  the  insured  is  entitled  to  all  the  salvage. 

In  Claflin  v.  System  Co.,  165  Mass.  501,  43  N.  E.  293,  52  Am.  St. 
Rep.  528,  the  defendant  was  held  to  be  an  insurance  company.  The 
contract  is  thus  stated  by  the  court:  'Tt  was  made  on  April  6,  1891, 
and  purports  to  bind  the  defendant,  in  consideration  of  a  sum  paid, 
to  purchase  at  a  fixed  price  the  accounts  which  during  one  year  a 


THE    NATURE    OF   THE    INSURANCE    CONTRACT   IN    GENERAL  5 

certain  business  firm  should  have  against  ascertained  insolvent  debt- 
ors, or  judgment  debtors  against  whom  execution  should  be  returned 
unsatisfied."  A  contract  to  purchase  bad  accounts  and  judgments  at 
a  fixed  price,  irrespective  of  value,  cannot  be  distinguished  in  princi- 
ple from  a  contract  to  purchase  damaged  crops  at  a  fixed  price,  ir- 
respective of  value.  That  same  company  was  held  to  be  an  insurance 
company  in  Shakman  v.  Same,  92  Wis.  366,  66  N.  W.  528,  32  L. 
R.  A.  383,  53  x\m.  St.  Rep.  920,  and  the  reasoning  of  the  court  is 
very  pertinent  to  this  case. 

It  is  doubtless  true  that  there  has  been  a  studied  effort  to  keep 
this  corporation  outside  the  operation  of  our  insurance  laws ;  but  the 
purpose  and  effects  of  its  contracts  are  too  clear  to  admit  of  doubt. 
They  exactly  meet  the  requirements  of  an  insurance  contract,  and 
the  corporation  for  which  petitioner  acted  as  agent  is  an  insurance 
company.  The  act  charged  in  the  complaint  is  a  crime  under  our 
statutes,  and  there  is  reasonable  and  probable  cause  to  believe  the 
petitioner  guilty  of  committing  the  act.  He  is  therefore  properly 
held. 

The  writ  issued  in  this  case  is  discharged,  and  petitioner  remanded 
to  the  custody  of  the  sheriff  of  Foster  county.    All  concur. 


STATE  V.  BEARDSLEY. 
(Supreme  Court  of  Minnesota,  1902.     88  Minn.  20,  92  N.  W.  472.) 

Earl  D.  Beardsley  was  convicted  of  acting  as  an  insurance  agent 
without  having  complied  with  the  requirements  of  the  insurance  act 
of  1895  (Gen.  Laws  1895,  c.  175),  and  appeals. 

Collins,  J.^  The  defendant  was  indicted  and  convicted  under  sec- 
tion 101,  c.  175,  Gen.  Laws  1895,  of  the  offense  of  assuming  to  act 
as  the  agent  of  an  insurance  company  without  first  having  procured 
a  license  or  certificate  of  authority  to  so  act.  That  he  solicited!  and 
secured  the  person  named  in  the  indictment  to  enter  into  a  contract, 
a  copy  of  which  was  made  a  part  thereof,  and  that,  as  agent,  he  de- 
livered it  to  the  same  person,  is  not  disputed,  so  the  principal  ques- 
tion at  issue  is  whether  this  contract  was  one  for  insurance,  within 
the  meaning  of  the  insurance  code,  above  mentioned.  Upon  this 
question  it  is  contended  by  defendant's  counsel  that  this  particular 
instrument  is  not  a  contract  of  insurance,  as  such  a  contract  is  de- 
fined by  either  section  3  or  section  63  of  chapter  175,  or  within  any 
of  the  provisions  of  chapter  175.     *     *     * 

It  appears  from  the  contract  that  the  Home  Co-operative  Company, 
for  which  defendant  was  acting,  and  whose  contract  he  delivered  as 
its  agent,  is  a  copartnership  organized  in  the  state  of  Kansas.  It 
consists  of  a  number  of  citizens  of  that  state,  and  under  that  name 

8  Part  of  tlie  opinion  is  omitted. 


6  THE   NATURE   AND    REQUISITES    OF   THE   CONTRACT 

enters  into  its  contracts  as  party  of  the  first  part;  the  party  of  the 
second  part  being  the  holders  of  the  contracts.  The  latter  are  not 
in  any  sense  members  of  the  copartnership  or  company.  The  com- 
pany is  entitled  to  all  profits  which  may  arise  in  carrying  out  its  con- 
tracts, and  must  bear  all  losses,  if  there  be  any.  A  stipulated  amount 
is  paid  monthly  by  each  contract  holder  as  a  premium,  and  there  is 
no  provision  for  levying  assessments  upon  such  holders  to  cover  losses 
or  shortages.  The  company  assumes  the  only  obligation  there  is  in 
the  contract,  aside  from  the  holder's  promise  to  pay  his  monthly  pre- 
mium, and  therefore  it  is  not  co-operative;  nor  is  it  a  benevolent  as- 
sociation, except  as  it  may,  through  its  plan  of  operations,  be  ben- 
eficial to  a  contract  holder  or  to  his  family,  precisely  as  is  a  life 
insurance  company  to  a  beneficiary  in  case  of  the  death  of  the  as- 
sured. Contract  holders  co-operate  v^^ith  each  other  to  the  same  and 
to  no  greater  extent  than  do  policy  holders  in  ordinary  life  insurance 
companies.  Each  holder  of  a  contract — all  contracts  being  numbered 
in  consecutive  order — promises  to  pay  a  membership  fee  of  $3,  and 
the  sum  of  $1.35  each  month,  up  to  and  prior  to  what  is  designated 
as  the  maturity  day  of  his  contract.  Of  this  $1.35,  $1  is  credited  to 
the  account  of  the  contract  holder,  and  is  to  be  applied  to  the  pur- 
chase of  a  home  for  him,  according  to  a  somewhat  mystifying  plan 
previously  formulated.  Ten  cents  of  the  payment  is  kept  as  a  reserve 
fund  to  meet  "contingent  liabilities"  of  the  company  when  perform- 
ing its  contracts,  and  the  balance,  25  cents,  is  taken  to  defray  the 
company  expenses,  including  compensation  for  services.  What  is 
done  with  the  membership  fee,  does  not  appear. 

The  monthly  payments  of  $1.35  are  made  by  a  contract  holder  un- 
til $50  have  been  accumulated  from  payments  upon  his  contract,  and 
from  payments  upon  like,  but  subsequently  made  and  numbered,  con- 
tracts with  other  persons ;  and  then  this  particular  contract  is  deemed 
to  have  matured,  and  its  holder  entitled  to  receive  installments  of  $50 
per  month,  to  be  applied  on  the  payment  for  his  home  until  the  full 
sum  of  $1,000  is  paid;  and,  when  this  sum  is  paid  in  monthly  install- 
ments, the  contract  is  fully  performed  by  the  company.  If  the  holder 
of  a  matured  contract  avails  himself  of  his  installment  privilege,  and 
prepares  to  build  a  house,  on  which  the  company  is  to  have  security, 
he  must  then  and  thereafter  pay  to  the  company  $5.35  each  month, 
instead  of  $1.35.  Five  dollars  of  this  amount  is  placed  to  his  credit, 
and  the  balance,  35  cents,  is  disposed  of  precisely  as  it  had  been  be- 
fore his  contract  matured.  When  the  monthly  payments,  of  $5  each, 
aggregate  the  sum  of  $1,000,  less  the  amount  the  holder  had  to  his 
credit  on  account  of  $1  payments  per  month  before  his  contract  ma- 
tured, the  lien  of  the  company  for  the  money  advanced  expires,  the 
debt  is  discharged,  and  a  clear  title  to  the  property  is  vested  in  the 
contract  holder.  This  is  the  plan  of  operations  through  which  the 
latter  is  supposed  to  finally  secure  his  home,  fully  paid  for,  and  free 
of  all  liens. 


I 


THE    NATURE   OF   THE   INSURANCE    CONTRACT   IN   GENERAL  7 

It  seems  to  be  admitted  that,  were  it  not  for  subsequent  provisions, 
this  contract  would  not  be  one  for  insurance,  but  the  state  relies  upon 
another  clause;  the  disability  referred  to  being  that  of  the  contract 
holder,  which  is  as  follows:  "Should  his  disability  be  total,  perma- 
nent, and  determined  by  satisfactory  evidence,  the  unpaid  balance  of 
one  thousand  dollars  provided  for  in  this  contract  shall  be  paid  to 
clear  the  home  of  the  party  of  the  second  part,  and  his  indebtedness 
to  the  parties  of  the  first  part  shall  be  discharged,  and  the  title  to 
the  property,  if  held  by  the  parties  of  the  first  part,  shall  be  conveyed 
as  he  may  direct.  In  the  event  of  his  death  before  all  advance  pay- 
ments to  him  shall  have  been  returned  to  the  first  parties,  the  par- 
ties of  the  first  part  shall  pay  the  balance,  if  any,  of  the  one  thousand 
dollars  contracted  for,  and  shall  cancel  his  indebtedness  to  the  first 
parties,  and,  if  the  title  to  the  property  purchased  is  in  the  first  par- 
ties, they  shall  convey  the  same  to  his  wife,  if  any;  if  there  shall  be 
no  wife,  then  to  his  heirs.  If  the  second  party  is  over  fifty  years  of 
age  at  the  signing  of  this  contract,  the  provisions  to  give  his  wife  or 
heirs  a  clear  title  in  case  of  his  death,  unless  accidental,  do  not  ap- 
ply. In  case  of  his  death,  unless  accidental,  his  wife  or  heirs  must 
continue  the  payments  according  to  the  obligations  of  the  second 
party." 

It  is  contended  in  behalf  of  the  state  that  this  provision  constitutes 
the  contract  one  for  insurance,  and  subjects  the  defendant  to  the  li- 
cense clause  of  chapter  175.  By  this  provision,  if  the  contract  holder's 
disability  becomes  total  and  permanent,  the  company  agrees  to  pay 
the  unpaid  balance  of  the  $1,000  which  the  holder  has  obligated  him- 
self to  pay  to  it  in  $5  installments,  and  for  which  payment  the  com- 
pany has  a  lien  upon  the  property,  for  the  purpose  of  clearing  and 
discharging  the  lien;  and,  if  this  agreement  is  performed,  the  en- 
tire indebtedness  is  canceled,  and  the  title  to  the  property  vested  as 
the  holder  may  direct.  In  the  event  of  the  holder's  death  before  all 
monthly  payments  have  been  made  by  him,  and  his  obligation  to  the 
company  discharged  in  full,  the  latter  agrees  to  pay  the  balance  of 
his  indebtedness,  and  to  cancel  the  amount  remaining  unpaid,  and,  if 
it  holds  title  to  the  property,  to  convey  the  same  to  his  wife,  if  there 
be  one,  and,  if  not,  to  his  heirs.  The  precaution  is  taken  by  the  com- 
pany to  exclude  from  the  operation  of  this  last  provision  contract 
holders  over  the  age  of  50  years,  unless  death  shall  be  accidental. 
This  promise  becomes  effective  only  in  the  case  of  disability  or  death, 
and,  if  either  occur,  the  company  is  obliged  to  release  its  claim  for 
further  payments,  and  to  remit  the  remaining  debt. 

This  is  a  valuable  promise  made  to  the  contract  holder  for  a  con- 
sideration, namely,  his  monthly  payments.  If  he  becomes  disabled, 
the  company  promises  to  do  an  act  of  value  to  him.  If  he  dies,  the 
promise  is  to  do  an  act  of  value  to  his  widow  or  to  his  heirs ;  that  is, 
an  act  equivalent  to,  and  actually  involving,  the  payment  of  money, 
conditioned  upon  the  cessation  of  human  life.    The  real  character  of 


8  THE    NATURE    AND    REQUISITES   OF   THE    CONTRACT 

this  promise,  or  of  the  act  to  be  performed,  cannot  be  concealed  or 
changed  by  the  use  or  absence  of  words  in  the  contract  itself;  and 
it  is  wholly  immaterial  that  on  its  face  this  contract  does  not  ex- 
pressly purport  to  be  one  of  insurance,  and  that  this  word  nowhere 
appears  in  it.  Its  nature  is  to  be  determined  by  an  examination  of 
its  contents,  and  not  by  the  terms  used.  The  performance  of  the  con- 
tract may  be  enforced  by  the  holder  in  case  of  disability,  or  by  his 
widow  or  heirs  in  case  of  his  decease.  If  it  does  not  come  within 
the  definition  of  an  insurance  contract,  as  found  in  section  3  (that  is, 
if  it  is  not  an  agreement  by  which  one  party,  for  a  consideration, 
promises  to  pay  money  or  its  equivalent,  or  to  do  some  act  of  value  to 
the  assured,  upon  the  destruction  or  injury  of  something  in  which  the 
other  party  has  an  interest),  it  involves  the  payment  of  money  or 
something  else  of  value  to  the  family  or  representatives  of  the  holder, 
conditioned  upon  the  continuance  or  cessation  of  human  life,  and  is 
covered  by  the  definition  found  in  section  63.  It  is  an  agreement  in- 
volving and  providing,  in  effect,  for  the  indirect  payment  of  money 
by  the  relinquishment  of  a  debt;  and  there  is  no  substantial  distinc- 
tion between  such  an  agreement  or  obligation  and  the  ordinary  life 
insurance  policy.  The  obligation  in  each  case  is  conditioned  upon  the 
cessation  of  human  life.     *     *     *     Judgment  affirmed.* 


STATE  v.  TOWLE. 

(Supreme  Judicial  Court  of  Maine,  1S88.     SO  Me.  287,  14  Atl.  195.) 

Peters,  C.  J.  The  state  sues  to  recover  a  penalty  of  the  defendant 
for  acting  as  a  soliciting  agent  for  the  Single  Men's  Endowment  As- 
sociation, a  company  having  its  home  in  the  state  of  Minnesota,  and 
doing  business  in  this  state  without  a  license  from  the  insurance  com- 
missioner. The  question  is  whether  or  not  this  association  in  an  in- 
surance company,  under  the  provisions  of  Rev.  St.  c.  49,  §  73. 

The  contract  between  the  company  and  its  patrons  declares  the  du- 
ties which  must  be  assumed  by  the  single  man  who  becomes  privileged 
to  an  endowment  in  the  association.  He  pays  $10  as  an  initiation  fee; 
$2  as  annual  dues  each  year  for  nine  years,  and  as  much  longer  as 
he  remains  single;  $1.25  on  the  marriage  of  any  associate;  and  he 
promises,  on  the  pain  of  forfeiture  of  all  rights  accruing  to  him,  that 

4  Compare  Trust  Co.  v.  Krumseig,  77  Fed.  41,  23  C.  C.  A.  1  (1896). 

As  illustrating  the  discordant  views  taken  by  the  courts  of  one  and 
the  same  kind  of  contract,  compare  Physicians'  Defense  Co.  v.  O'Brien,  100 
Minn.  490,  111  N.  W.  396  (1907),  and  State  ex  rel.  Physicians'  Defense  Co. 
V.  Laylin,  73  Ohio  St.  90,  76  N.  E.  567  (1905).  The  corporation  involved  in 
these  cases  issued  a  contract  by  which,  in  consideration  of  a  stipulated 
amount,  it  agreed  to  defend  physicians  against  all  suits  for  damages  for  mal- 
practice at  its  own  expense,  not  exceeding  a  certain  amount,  but  did  not 
assume  or  agree  to  assume  or  pay  any  judgment  rendered.  The  supreme 
court  of  Minnesota  held  this  to  be  an  insurance  contract,  while  the  supreme 
court  of  Ohio  regarded  it  as  a  contract  for  services  only. 


THE    NATURE    OF   THE    INSURANCE    CONTRACT    IN    GENERAL,  9 

he  will  not  himself  marry  within  two  years  from  the  date  of  his  admis- 
sion to  the  association.  For  the  performance  by  him  of  these  imder- 
takings,  the  company  promises  to  pay  to  his  wife,  if  married  to  him 
after  the  expiration  of  the  two  years,  the  sum  of  as  many  dollars  as 
there  are  associates  in  the  order,  not  exceeding-  $1,000,  provided  that 
there  be  that  amount  of  money  in  the  treasury  at  the  time,  or  it  can 
be  collected  by  an  assessment  upon  the  associates.  No  word  is  spoken 
of  insurance.  That  it  is  a  wagering  or  gambling  contract,  and  void 
upon  grounds  of  public  policy,  because  in  restraint  of  marriage,  there 
is  no  room  for  doubt.  The  same  or  similar  contract  has  been  held  to 
be  void  in  White  v.  Benefit  Union,  76  Ala.  251,  52  Am.  Rep.  325,  and 
in  Chalfant  v.  Payton,  91  Ind.  202,  46  Am.  Rep.  586. 

The  counsel  for  both  parties  agree  that  the  contract,  for  one  reason 
or  another,  is  illegal,  but  the  counsel  for  the  state  contends  that, 
whether  the  contract  be  legal  or  illegal,  it  is  a  contract  of  insurance, 
and  that,  as  such,  it  falls  under  the  supervision  of  the  commissioner. 

It  is  not  to  be  conceded,  we  think,  that  this  contract,  in  the  sense 
of  any  modern  use  of  the  term,  is  an  insurance  policy.  No  loss  or 
casualty  or  peril  is  named  for  which  any  indemnity  is  promised.  It 
is  more  of  a  betting  contract  on  a  future  event.  It  is  true  that  there 
was  formerly  a  class  of  betting  contracts  styled  "insurances,"  and 
that  a  narrow  line  once  existed  between  gambling  and  betting  con- 
tracts and  those  then  denominated  contracts  of  insurance;  and  the 
case  of  Paterson  v.  Powell,  9  Bing.  320,  relied  on  by  the  state,  shows 
how  far  a  court  was  induced  to  go  to  determine  that  a  contract  sim- 
ilar in  principle  to  the  present  was  an  insurance  policy,  in  order  to 
declare  it  void.  The  statute  (4  Geo.  III.  c.  48)  rendered  speculative 
insurance  contracts  void,  and,  strange  to  say,  allowed  all  contracts 
founded  on  mere  bettings  and  gamblings  to  be  valid.  At  this  day,  the 
contract  in  that  case,  with  all  its  imitations  of  the  thing,  would  hardly 
receive  the  appellation  of  an  insurance  policy. 

It  does  not  seem  probable  that  the  Legislature  intended  to  commit  to 
the  care  of  the  commissioner  the  business  of  illegal  or  illegitimate  in- 
surance companies.  It  would  be  tolerating,  instead  of  condemning, 
them.  He  has  the  power  to  issue  and  suspend  licenses.  But  there 
must  be  cause  for  either  act.  Rev.  St.  c.  49,  •§§  7Z,  75.  His  business 
is  to  deal  with  such  companies  as  can,  when  licensed,  issue  legal  pol- 
icies. His  act  cannot  confer  legality  upon  companies  doing  illegal  busi- 
ness. The  state  seeks  to  recover  a  penalty  of  $50,  because  the  defendant 
acted  without  an  official  license,  while  the  policy,  if  to  be  called  such. 
issued  by  him,  would  be  unlawful  and  void,  whether  he  was  acting 
with  or  without  a  license.  It  would  be  inconsistent  to  collect  a  penalty 
of  an  agent  for  not  doing  business  under  a  void  license.  Plaintiff  non- 
suit.^ 

5  A  contract  to  furnish  burial  expenses  construed  as  an  insurance  con- 
tract, see  State  v.  Willett,  171  lud.  296,  86  N.  E.  68,  23  L.  R.  A.  (N.  S.)  197 
(1908). 


10  THE    NATURE   AND   REQUISITES   OF   THE   CONTRACT 

II.  A  Personal  Contract  Uberrimae  Fidei  • 
1.  In  Generai, 


QUARLES  V.  CLAYTON. 

(Supreme  Court  of  Tennessee,  1SS9.     87  Tenn.  308,  10  S.   W.  505,  3  L. 

R.  A.  170.) 

Agreed  case  between  Nancy  M.  Quarles  and  J.  A.  Clayton,  adminis- 
trator of  her  deceased  husband's  estate,  to  determine  the  rights  of 
the  parties  to  the  proceeds  of  a  poHcy  of  fire  insurance  issued  to  the 
deceased.     Decree  for  the  administrator,  and  Mrs.  Quarles  appeals. 

LuRTON,  J.  The  deceased  husband  of  appellant  took  out  a  policy  of 
fire  insurance  upon  his  dwelling;  loss  payable  to  the  assured,  his  exe- 
cutors or  administrators.  Before  the  expiration  of  the  policy  by  time, 
but  after  the  death  of  the  assured,  the  house  was  accidentally  burned. 
The  insurance  company,  by  consent  of  the  claimants,  paid  the  loss 
into  tlie  hands  of  the  defendant,  under  an  agreement  that  the  fund 
should  be  held  subject  to  the  legal  rights  of  complainant,  if  any  she 
had,  to  be  thereafter  determined  by  the  courts.  An  agreed  case  was 
made  up,  and  submitted  to  the  chancery  court,  and  from  the  decree 
of  the  chancellor  Mrs.  Quarles  has  appealed. 

Appellant  is  the  widow  of  the  assured,  and  claims  a  life  estate  in 
the  fund,  upon  the  following  state  of  facts: 

Before  her  marriage  to  the  assured,  a  marriage  contract  was  entered 
into,  and  duly  executed,  and  registered  in  the  county  of  their  residence, 
by  which,  among  other  things  not  material  to  be  here  mentioned,  it 
was  agreed  "that  all  the  property  and  estate,  both  real  and  personal, 
now  owned  or  hereafter  acquired  by  said  John  W.  Quarles,  shall  con- 
tinue to  be  his,  and  shall  remain  wholly  unaffected  by  said  contem- 
plated marriage  with  said  Mrs.  Nancy  M.  Kirk,  in  favor  of  whom 
no  marital  or  other  rights  on  his  said  property  and  estate  shall  attach 
or  inure  by  reason  of  said  contemplated  marriage  relation,  further,  or 
otherwise,  than  is  expressed  and  provided  in  this  instrument;  and 
he  hereby  reserves  the  right  and  privilege  of  making  such  suitable  pro- 
vision for  her  out  of  his  estate  as  he  may  at  any  time  desire,  either 
by  deed  of  gift,  last  will  and  testament,  or  otherwise.  If  he  die  with- 
out making  any  such  provision  for  her,  then  she  shall  out  of  his  real 
estate,  if  she  survive  him,  have  a  comfortable  home,  to  consist  of,  say, 
about  one  hundred  and  forty  acres  of  his  land's,  in  which  will  be  in- 
cluded his  dwelling  and  outhouses;    the  same  to  be  surveyed  and  laid 

6  For  discussion  of  principles,  see  Vance  on  Insurance.  §§  26,  27.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  I,  pp.  78-85. 


A   PERSONAL   CONTRACT    UBERRIMCE    FIDEl  11 

off  to  her  by  proper  metes  and  bounds,  and  in  such  manner  as  will 
be  most  useful  and  convenient  to  her,  and  with  least  injury  to  his  es- 
tate. This  home,  so  laid  off  to  her,  to  be  and  remain  to  her  own 
proper  use,  support,  and  benefit  for  and  during  the  term  of  her  natural 
life,  and,  after  her  death,  to  take  such  directions  as  he  may  give  to 
it  by  his  last  will  and  testament,  or  other  proper  mode  of  disposing  of 
real  estate ;  and  if  he  die  without  any  will,  and  without  disposing  of 
the  remainder  interest  in  said  'Home,'  as  above  provided  for  and  de- 
scribed, then  the  same  shall  descend  to  his  proper  heirs  and  distributees 
according  to  the  laws  of  the  state  of  Tennessee." 

After  the  marriage,  the  dwelling  house  above  described,  which  was 
then  and  after  the  residence  of  Mr.  Ouarles  and  his  wife,  was  insured 
under  a  contract,  as  before  stated,  that  the  loss  should  be  paid  to  the 
assured,  the  husband  of  appellant,  his  executors  or  administrators. 

Mr.  Quarles  died  intestate,  and  without  having,  by  deed  or  other- 
wise, made  any  provision  for  his  widow  other  than  that  contained  in 
the  marriage  contract.  The  widow  continued  to  occupy  the  dwelling 
as  her  residence  until  it  was  destroyed  by  fire.  The  portion  of  the 
farm  of  the  decedent  which  was  to  be  assigned  to  her  under  the  mar- 
riage agreement  had  not,  at  the  time  of  the  fire,  been  laid  off  by  metes 
and  bounds ;  but  it  was  subsequently  done  to  the  satisfaction  of  all 
concerned.  This  estate  was  so  laid  off,  as  required  by  the  contract, 
as  to  include  the  outhouses  of  the  assured,  and  likewise  the  site  of  the 
burned  mansion  house.  The  insurance  policy  was  not  taken  out  upon 
any  agreement  or  contract,  express  or  implied,  with  appellant,  that 
she  was  to  have  any  interest  whatever  therein. 

Under  this  state  of  facts,  has  appellant  any  equitable  or  legal  inter- 
est in  the  proceeds  of  this  fire  policy?  That  the  precise  boundaries  of 
the  140  acres  to  be  laid  off  to  her  had  not  been  ascertained  by  survey 
at  the  time  of  the  fire  can  cut  no  figure,  because  it  was  to  be  laid  oft', 
in  all  events,  so  as  to  include  the  mansion  house  and  the  outhouses. 
It  seems  equally  clear  that  she  cannot  hold  the  estate  of  her  husband 
responsible  for  the  value  of  the  house,  because,  at  his  death,  her  con- 
tingent right  to  the  house  for  her  life  ripened,  and  became  a  vested 
interest  for  her  life ;  and  at  the  moment  her  husband  died  intestate, 
and  without  having  made  any  other  provision  for  her,  the  house  was 
standing,  and  her  right  to  the  use  and  possession  at  once  accrued.  Her 
interest  became  at  once  an  insurable  interest;  and  the  destruction  of 
the  house  by  any  means  after  her  husband's  death  was  not  an  injury 
for  which  his  estate  or  his  heirs  would  be  responsible. 

Whatever  right  she  has  to  any  interest  in  this  fund  must  arise  from 
the  contract  of  insurance.  The  person  assured  against  loss  in  the 
policy  issued  upon  the  premises  of  Mr.  Ouarles  was  the  owner  him- 
self. By  all  the  authorities,  a  contract  of  fire  insurance  is  a  personal 
contract,  and  assures  the  interest  alone  of  the  assured!  in  the  property, 
in  the  absence  of  some  agreement  or  trust  to  the  contrary. 

The  policy  taken  out  by  ]\Ir.  Ouarles  contained  the  usual  provision 


12  THE    NATURE   AND    REQUISITES   OF   THE    CONTRACT 

prohibiting  any  assignment  of  the  policy  without  the  consent  of  the 
insurer.  It  also  contained  the  further  stipulation  that  the  policy  should 
become  void  "in  case  any  change  shall  take  place  in  title  or  possession, 
except  by  succession  by  reason  of  the  death  of  the  assured."  These 
provisions  have  been  upheld  by  the  courts  as  reasonable  conditions, 
limiting  and  restricting  the  liability  of  the  insured.  That  they  are 
reasonable  is  obvious,  when  we  consider  that  the  contract  is  one  for 
the  personal  indemnity  of  the  assured  against  a  loss  affecting  his  in- 
terest in  the  property  covered  by  the  policy.  The  insurer  contracts 
with  reference  to  the  character  of  the  assured  for  integrity  and  pru- 
dence. He  might  be  very  willing  to  agree  to  make  good  the  loss  of 
one,  by  the  destruction  of  property  owned  by  him,  while  he  would 
be  altogether  unwilling  to  insure  the  same  property  if  owned  by  an- 
other. Again,  the  contract  undertakes  to  make  good  any  loss  which 
the  assured  may  sustain ;  and  from  this  it  follows  that,  if  the  assured 
has  parted  with  his  interest  before  the  loss,  he  cannot  ask  to  be  indem- 
nified, because  he  has  sustained  no  loss.  The  provision  against  the 
change  of  title  is  therefore  in  precise  harmony  with  the  personal  char- 
acter of  the  contract.  In  some  fire  insurance  contracts  the  stipula- 
tion against  change  of  title  extends  so  far  as  to  make  the  policy  void 
should  such  change  of  title  be  brought  about  by  the  death  of  the  assured. 
The  title,  in  such  case,  is  no  longer  in  the  assured,  but  has  by  law 
passed!  to  his  heirs,  or  by  will  to  his  devisees ;  and  a  change  of  title 
so  occurring  has  been  held  to  defeat  an  action  for  a  loss  occurring 
after  the  death  of  the  assured.  Sherwood  v.  Insurance  Co.,  73  N.  Y. 
447,  29  Am.  Rep.  180;  Hine  v.  Woolworth,  93  N.  Y.  75,  45  Am.  Rep. 
176. 

The  contract  is  not,  therefore,  one  which  attaches  to  or  follows  the 
property,  being  one  for  the  personal  indemnity  of  the  assured;  and, 
where  the  insurer  does  not  assent  to  the  assignment  of  the  policy  to 
a  grantee  of  the  property,  neither  the  assured  nor  his  assignee  of  the 
property  can  recover  upon  the  policy.  Hobbs  v.  Insurance  Co.,  1 
Sneed,  444. 

But  this  policy  was  not  avoided  by  the  death  of  the  assured.  It  ex- 
pressly provides  that  a  change  of  title  shall  defeat  the  policy,  except 
when  it  occurs  "by  succession  by  reason  of  the  death  of  the  assured." 
The  legal  effect  of  this  exception  is  to  continue  and  extend  the  policy 
notwithstanding  the  change  of  title  by  death  of  the  assured.  In  whose 
favor  is  this  continuance?  It  has  been  ably  argued  that  the  effect  of 
this  continuance  is  in  favor  of  those  who  by  "succession"  take  the 
property  covered  by  the  risk,  and  that,  though  it  may  be  payable  to 
the  executor  or  administrator  of  the  assured,  yet  he  will,  in  case  the 
risk  was  upon  real  estate,  take  and  hold  in  trust  for  those  who  by 
"succession"  have  taken  the  property,  and  who  are  therefore  the  per- 
sons damnified  by  the  loss.  This  word  "succession,"  in  the  connection 
in  which  it  appears,  is  a  word  of  technical  meaning,  and  refers  to 


A    PERSONAL    CONTRACT   UBERRIMCE    FIDBI  13 

those  who  by  descent  or  will  take  the  property  of  a  decedent.  It  is 
a  word  which  clearly  excludes  those  who  take  by  deed,  grant,  gift,  or 
any  form  of  purchase  or  contract.  This  meaning  is  made  most  obvious 
when  we  consider  that  the  contract  provided  against  any  change  of 
title  except  by  "succession  ;"  and,  to  more  directly  affix  a  limited  and 
technical  meaning,  the  explanatory  words  are  added,  "by  reason  of 
the  death  of  the  assured." 

There  is  much  plausibility  in  the  argument  that,  inasmuch  as  the 
policy  is  continued  notwithstanding  a  change  of  title  has  occurred,  in 
case  the  risk  is  upon  real  estate,  the  extension  is  by  intendment  of  the 
contract,  to  operate  as  an  indemnity  to  those  who  by  "succession" 
have  become  the  owners  of  the  property.  In  such  a  case,  neither  the 
administrator  nor  the  distributee  would  have  any  interest  to  be  insured, 
while  the  heir  or  devisee  upon  whom  the  title  has  been  cast  would  be 
the  legal  and  ecjuitable  owner,  and  the  person  to  suffer  by  the  loss. 

The  root  principle  of  insurance,  that  the  loss  is  payable  only  to 
the  extent  that  the  assured  has  an  insurable  interest,  W'ould  seem  to 
preclude  the  administrator  in  such  a  case  from  any  recovery,  or  make 
him  a  trustee  for  the  heir  of  what  he  should  recover  when  the  loss 
occurred  after  the  property  had  passed  by  "succession"  to  the  heir. 
This  seems  to  be  the  holding  of  the  courts,  when  the  question  has  aris- 
en, although  the  text-book  writers  seem  not  to  have  seized  upon  the 
distinction.  Wyman  v.  Wyman,  26  N.  Y.  253 ;  Culbertson  v.  Cox, 
29  Minn.  309,  13  N.  W.  177,  43  Am.  Rep.  204.  But  does  the  appellant 
take  any  interest  in  the  insured  property  by  succession?  If  she  had 
taken  as  devisee  or  under  the  homestead  law,  she  would  be  within 
the  principle  just  discussed,  and  would  be  within  the  express  holding 
of  the  two  cases  last  cited.  Unfortunately  for  her,  appellant  takes 
whatever  interest  she  has  in  the  property  under  the  fire  policy  by  virtue 
of  her  marriage  contract.  She  is  not  entitled  to  homestead  or  dower, 
for  she  expressly  agreed  to  take,  in  lieu  of  all  right  which  the  law- 
would  have  given  her,  the  provision  wdiich  she  covenanted  for  by  mar- 
riage contract.  This  interest  was  a  contingent  one.  It  depended  upon 
two  events :  First,  that  she  should  survive  her  husband ;  and,  second, 
that  he  should  not  by  deed  or  will  make  any  other  provision  for  her. 
Both  of  these  events  occurred ;  and,  instantly  upon  the  death  of  hei 
husband,  she  became  seised  of  an  estate  for  her  life  in  the  insured 
premises.  She  therefore  took  this  mansion-house  as  the  grantee  of  her 
husband,  and  did  not  take  it  by  "succession." 

But  it  is  insisted  that,  however  she  acquired  the  estate,  she  has  an 
equitable  interest  in  a  life  estate  in  this  fund,  because  it  represents 
the  premises  which  she  had  a  right  to  occupy  and  enjoy  during  her 
life.  This  presents  a  strong  case  in  morals,  but  her  legal  rights  are 
not  so  clear.  The  rule  is  well  settled  that  no  equity  attaches  upon 
the  proceeds  of  a  fire  policy  in  favor  of  third  persons  who,  in  the 
character  of  grantee,  mortgagee,  or  creditor,  may  have  sustained  loss, 
in  the  absence  of  some  trust  or  contract  to  that  effect.     May,  Ins.  § 


14  THE   NATURE   AND    REQUISITES   OF   THE   CONTRACT 

456;  3  Kent,  Comm.  (10th  Ed.)  499.  This  rule  appHes  as  well  to 
vendors  and  Henors  of  every  class  as  to  mortgagees  who  may  have 
had  their  security  impaired  by  a  loss  by  fire.  This  court,  in  a  well- 
considered  case,  held  that  the  holder  of  a  mechanic's  lien  upon  a  build- 
ing had  no  equitable  lien  in  a  fire  policy  effected)  by  the  owner,  and 
assigned  to  a  mortgagee.  Galyon  v.  Ketchen,  85  Tenn.  55,  1  S.  W. 
508. 

An  equity  will  attach  when  the  vendee  or  mortgagor  was,  by  cove- 
nant or  otherwise,  bound  to  insure  the  property,  for  the  better  security 
of  the  creditor  or  vendor.  In  such  a  case  the  latter  would  have,  to  the 
extent  of  their  interest  in  the  property  destroyed,  an  equitable  lien 
upon  the  money  due  on  a  policy  taken  by  the  mortgagor  or  vendee 
or  other  debtor  who  had  given  a  security  upon  the  insured  property ; 
and  this  would  be  so,  even  though  the  policy  stand  in  the  name  of  the 
debtor,  vendee,  or  mortgagor.  But,  in  the  absence  of  some  such  agree- 
ment, the  mortgagor  or  vendee  or  grantor,  having  an  insurable  interest, 
might  insure  such  interest  for  his  own  benefit ;  and  no  lien  would  at- 
tach thereto  in  favor  of  his  creditor,  secured  by  lien  or  mortgage  or 
otherwise  upon  the  insured  property.  Carter  v.  Rockett,  8  Paige  ( N. 
Y.)  437;  Wheeler  v.  Insurance  Co.,  101  U.  S.  439,  25  L.  Ed.  1055; 
Nordyke  v.  Gery,  112  Ind.  535,  13  N.  E.  683,  2  Am.  St.  Rep.  219; 
Sheld.  Subr.  §•§  233,  235. 

The  agreed  state  of  facts  upon  which  this  case  is  submitted  fails 
to  show  any  covenant,  contract,  agreement,  or  understanding  that  Mr. 
Quarles  should  insure  this  property  for  the  benefit  of  appellant.  The 
interest  of  appellant,  after  the  death  of  her  husband,  was  an  insurable 
one ;  so  was  the  remainder  interest  of  the  heirs.  The  decedent  hav- 
ing left  no  debts,  and  the  distributees  being  the  same  persons  who  take 
the  real  estate  as  heirs,  no  controversy  arises  as  between  the  admin- 
istrator and  the  remainder-men. 

That  the  insurance  company  had  the  option  to  rebuild  is  urged  as 
a  reason  why  the  insurer's  election  to  pay,  instead  of  rebuilding,  ought 
not  to  operate  to  the  disadvantage  of  complainant.  This  option  is  one 
common  to  all  contracts  of  fire  insurance ;  and  the  argument,  if  good 
in  this  case,  would  operate  to  overturn  the  well-settled  rule  that  no 
equity  attaches  to  the  proceeds  of  a  fire  policy  in  favor  of  third  per- 
sons who  have  suffered  loss,  in  the  absence  of  some  agreement  to  that 
effect.  If  this  option  to  pay  or  rebuild  should  be  regarded  as  sufficient 
to  found  an  equity  upon  in  favor  of  third  persons  disappointed  by  the 
election  of  the  insurer,  the  law  of  insurance  would  have  to  be  rewrit- 
ten. There  is  no  privity  between  appellant  and  the  insurer,  and  no  ac- 
tion of  his  can  be  ground  to  give  her  an  interest  which  she  would  not 
otherwise  have. 

The  decree  of  the  chancellor  will  be  affirmed. 


a  personal  contract  uberrima  fidei  15 

2.  Contracts  of  Fire  Insurance  Not  Ordinarily  Assignable 


NEW  V.  GERMAN  INS.  CO.  OF  FREEPORT. 

(Appellate  Court  of  Indiana,  1S92.     5  Ind.  App.  82,  31  N.  E.  375.) 

Action  by  John  W.  New  against  the  German  Insurance  Company 
of  Freeport,  111.     Judgment  for  defendant.     Plaintiff  appeals. 

Crumpacker,  J.  This  action  was  brought  by  New  against  the  in- 
surance company  upon  a  policy  of  fire  insurance  issued  by  the  de- 
fendant to  one  Pierson,  covering  certain  buildings  in  the  state  of  Mis- 
souri. The  policy  contained  the  following  provision  respecting  the  as- 
signment thereof,  and  the  change  of  title  to  the  property  insured:  "If 
the  property,  or  any  part  thereof,  shall  be  sold,  conveyed,  incumbered 
by  mortgage  or  otherwise,  or  any  change  takes  place  in  the  title,  use, 
occupation,  or  possession  thereof,  whatever,  or  if  foreclosure  proceed- 
ings shall  be  commenced,  or  if  the  interest  of  the  insured  in  said 
property,  or  any  part  thereof,  now  is  or  shall  become  any  other  than 
a  perfect  legal  and  equitable  title  and  ownership,  free  from  all  liens 
whatever,  except  as  stated  in  writing  hereon,  *  *  *  or  if  the  pol- 
icy shall  be  assigned  without  written  consent  hereon,  then,  and  in 
every  such  case,  this  policy  shall  be  absolutely  void." 

It  is  alleged  in  the  complaint  that  plaintiff"  became  the  owner  of 
the  property  after  the  execution  of  the  policy,  by  purchase,  and  the 
title  was  transferred  to  him  by  said  Pierson  by  deed ;  that  said  Pier- 
son  transferred  the  policy  to  plaintiff  by  an  assignment  in  due  form 
indorsed  thereon,  and  plaintiff  then  sent  it  to  an  agent  of  the  defend- 
ant at  Hopkins,  Mo.,  to  procure  the  defendant's  consent  to  such  as- 
signment, but  such  agent  returned  the  policy  with  notice  that  he  had 
no  authority  to  give  the  necessary  consent,  and  suggested  that  plain- 
tiff send  it  to  the  defendant's  general  agents,  then  residents  of  Mary- 
ville,  Mo.,  who  would,  without  any  trouble,  consent  to  said  transfer 
in  writing;  that  thereupon  the  plaintiff  caused  said  policy  to  be  for- 
warded to  the  said  agents,  who  issued  the  said  policy  or  caused  the 
same  to  be  issued,  and  who  received  the  same  by  due  course  of  mail; 
that  they  retained  it  some  considerable  time,  and  then  returned  it  to 
the  plaintiff  by  mail  without  any  word  of  explanation,  without  any 
disapproval  thereof,  without  any  expression  or  word  in  regard  to  the 
same,  and  without  returning  or  offering  to  return  to  him  or  the  said 
Pierson  any  part  of  the  unearned  premium  received  on  "said  policy" ; 
that  plaintiff',  on  receiving  said  policy  from  said  agents,  supposed,  and 
in  good  faith  believed,  that  the  necessary  written  consent  had  been 
indorsed  thereon,  and,  so  believing,  omitted  to  examine  the  same,  but 
laid  it  away  in  his  safe  until  after  the  loss  occurred,  something  over 
a  year  thereafter;    that  he  was  led  to  believe  that  consent  had  been 


16  THE   NATURE    AND    REQUISITES   OF   THE    CONTRACT 

indorsed  upon  the  policy  by  the  representations  of  the  defendant's 
agent  at  Hopkins,  Mo.,  that  the  general  agents  would  undoubtedly  do 
so.  It  was  also  alleged  that  proof  of  loss  had  been  made,  and  all 
conditions  complied  with,  on  the  part  of  plaintiff. 

A  demurrer  was  sustained  to  the  complaint,  and  the  plaintiff  de- 
clined to  amend,  whereupon  judgment  was  rendered  against  him. 

The  question  for  decision  arises  upon  the  ruling  of  the  court  upon 
the  demurrer.  Appellant's  counsel  insist  that  the  assignment  of  the 
policy  without  the  company's  consent  did  not  ipso  facto  operate  a  for- 
feiture, but,  having  received  notice  of  the  assignment,  some  act  or 
declaration  upon  the  part  of  the  company  was  necessary  to  produce 
that  result;  and,  having  remained  silent,  the  breach  of  condition  was 
waived.  It  is  argued  that  the  word  "void"  should  be  construed  as 
"voidable."  In  many  instances  after  an  insurance  company  has  notice 
of  the  breach  of  a  condition  which,  according  to  the  terms  of  the 
policy,  would  result  in  a  forfeiture,  it  must  in  some  affirmative  man- 
ner manifest  its  avoidance  of  the  policy,  or  the  condition  will  be  taken 
as  waived.  Association  v.  Beck,  77  Ind.  206,  40  Am.  Rep.  295 ;  Ha- 
vens V.  Insurance  Co.,  Ill  Ind.  90,  12  N.  E.  137,  60  Am.  Rep.  689; 
Insurance  Co.  v.  Marple,  1  Ind.  App.  411,  27  N.  E.  633. 

A  void  contract  is  incapable  of  being  inspired  with  legal  vitality 
except  by  some  act  equivalent  in  effect  to  a  new  execution.  Hence  it 
follows  that  the  breach  of  any  condition  that  can  be  waived  renders 
the  contract  voidable  only.  But  a  different  principle  applies  to  the 
question  involved  in  this  appeal.  Insurance  policies  are  contracts  of 
indemnity,  and  are  essentially  personal  in  their  nature.  They  relate 
to  the  insured,  rather  than  the  subject-matter  of  insurance,  and  at 
common  law  were  nonassignable.  There  is  no  statutory  provision 
changing  the  common-law  rule,  but  after  a  loss  has  occurred  the  pol- 
icy becomes  a  chose  in  action,  and  is  assignable  as  other  choses  in  ac- 
tion are.  Courts  know,  as  a  matter  of  general  knowledge,  that  the 
character  of  the  insured  is  taken  into  account,  as  affecting  the  moral 
hazard  of  a  risk;  and  this  is  an  additional  reason  why  a  change  of 
indemnitee  should  not  occur  without  consent  of  the  indemnitor.  An 
insured  must  have  an  interest  in  the  subject  of  insurance,  or  the  pol- 
icy will  be  held  a  wager  contract,  and  void  as  against  public  pol- 
icy. Having  obtained  valid  insurance,  if  the  interest  of  the  policy 
holder  ceases  in  the  property  covered,  the  policy  at  once  becomes  in- 
operative. There  is,  then,  no  possibility  of  a  loss;  consequently,  no 
basis  for  indemnity.  The  contract  being  one  of  indemnity,  and  per- 
sonal to  the  insured,  it  follows  that  any  assignment  by  him,  with  a 
transfer  of  the  title  to  the  property,  transfers  no  right  in  the  insur- 
ance to  the  assignee,  without  the  consent  of  the  insurer.  Such  con- 
sent is  equivalent  to  the  creation  of  a  new  contract  between  the  as- 
signee and  the  insurer,  according  to  the  terms  of  the  policy  assigned. 
It  is  not  strictly  an  assignment,  but  the  making  of  a  new  contract. 
Insurance  Co.  v.  Munns,  120  Ind.  30,  22  N.  E.  78,  5  L.  R.  A.  430. 


A    PERSONAL   CONTRACT   UBERRIMCE    FIDEI  17 

This  being  the  case,  there  never  was  any  contract  between  the  ap- 
pellant and  appellee,  and  consequently  no  conditions  that  could  be 
waived.  After  the  transfer  of  title,  Pierson  had  no  insurance,  be- 
cause he  had  nothing  to  insure.  Hence,  no  right  passed  by  the  as- 
signment of  the  policy.  Appellant  had  no  right  to  rely  upon  the  sug- 
gestion of  the  first  agent  to  whom  he  sent  the  policy  that  the  gen- 
eral agents  would  indorse  the  company's  consent  to  the  transfer. 
Conditions  may  be  waived  by  silence,  under  some  circumstances,  but 
it  is  rare  that  entirely  new  indemnity  contracts  may  be  created  in  that 
manner.    Judgment  affirmed. 


KASE  v.  HARTFORD  FIRE  INS.  CO. 

(Supreme  Court  of  New  Jersey,  1895.     58  N.  J.  Law,  34,  32  Atl.  1057.) 

Action  by  John  H.  Kase,  for  the  use  of  Albert  O.  Headley,  against 
the  Hartford  Fire  Insurance  Company.  Judgment  for  defendant,  and 
plaintiff  brings  error. 

GuMMERE,  J.  This  is  an  action  brought  by  the  plaintiff,  for  the 
benefit  of  Albert  O.  Headley,  upon  a  policy  of  insurance  issued  by 
the  defendant  corporation.  The  principal  facts  in  the  case  are  undis- 
puted, and  briefly  these:  The  Hartford  Fire  Insurance  Company  on 
the  8th  day  of  May,  1890,  issued  to  G.  Schwab  &  Bros,  a  policy  of 
insurance  upon  certain  property  in  the  city  of  Newark,  which  was 
covered  by  a  mortgage  held  by  John  H.  Kase,  the  plaintiff  in  this 
suit.  The  policy  contained  this  clause :  "Loss,  if  any,  payable  to  John 
H.  Kase,  mortgagee,  as  interest  may  appear."  It  also  contained  the 
ordinary  provision  that  the  interest  of  the  mortgagee  should  not  be 
invalidated  by  any  act  or  neglect  of  the  mortgagor,  nor  by  any  change 
in  the  ownership  of  the  property.  On  the  10th  day  of  November, 
1891,  Kase  assigned  to  Headley  the  mortgage  which  covered  the  in- 
sured property,  together  with  the  bond  which  it  was  given  to  secure, 
but  did  not  assign  to  him  the  policy  of  insurance,  or  his  interest  in 
it.  Nor  did  the  insurance  company  consent  to  the  transfer  to  Head- 
ley,  or  agree  that  he  should  stand  in  the  place  of  Kase,  so  far  as  the 
payment  of  any  loss  was  concerned.  A  short  time  after  the  mort- 
gage was  assigned,  and  on  the  28th  of  November  of  the  same  year, 
the  mortgaged  premises  were  partially  destroyed  by  fire.  Before  this 
occurred,  however,  the  policy  of  insurance  had  become  invalidated,  as 
against  the  owners  of  the  premises,  by  reason  of  their  violation  of 
certain  of  its  conditions,  and  had  ceased  to  be  an  obligation  of  the 
company,  so  far  as  they  were  concerned.  After  the  fire  occurred, 
Kase  delivered  the  policy  of  insurance  to  Headley,  and  then  brought 
this  suit,  in  his  own  name,  for  the  use  of  Headley. 

The  question  to  be  determined  is  whether  such  a  suit  can  be  main- 
CooLET  Ins. — 2 


18  THE    NATURE    AND   REQUISITES   OF   THE    CONTRACT 

tained,  and  damages  recovered  from  the  company,  by  reason  of  the 
partial  destruction  by  fire  of  the  mortgaged  premises,  notwithstand- 
ing that  at  the  time  of  the  fire  the  poHcy  had  become  invalidated,  as 
against  the  owners  of  the  premises,  and  that  Kase,  although  he  had 
assigned  his  mortgage  to  Headley  before  the  fire  occurred,  failed  to 
transfer  to  him  his  interest,  as  mortgagee,  in  the  policy  of  insurance. 

It  seems  clear  that,  in  the  condition  of  affairs  above  narrated,  this 
action  cannot  be  maintained.  So  far  as  Kase  is  concerned,  he  has  not 
suffered  any  loss  by  reason  of  the  injury  to  the  mortgaged  premises,, 
for  he  had  no  interest  in  them  when  the  fire  occurred.  So  far  as 
Headley,  the  assignee  of  the  mortgage,  is  concerned,  although  it  is 
true  that  the  fire  depreciated  his  mortgage  security,  and  thereby  in- 
flicted pecuniary  loss  upon  him,  yet,  as  he  had  no  interest  in  the  pol- 
icy of  insurance  at  the  time  of  the  fire,  he  has  no  right  to  call  upon 
the  defendant  company  to  make  good  the  loss  which  he  has  sustained. 
A  policy  of  insurance  is  a  contract  of  indemnity,  personal  to  the  party 
to  whom  it  is  issued,  or  for  whose  interest  the  insurer  undertakes  to 
be  responsible  in  case  of  loss,  and  cannot  be  transferred  to  a  third 
person,  so  as  to  be  valid  in  his  hands  against  the  insurer,  without 
the  insurer's  consent.  Wilson  v.  Hill,  3  Mete.  (Mass.)  69;  Flanagan 
V.  Insurance  Co.,  25  N.  J.  Law,  506;  Rayner  v.  Preston,  18  Ch. 
Div.  1. 

Not  only  was  no  such  consent  given  in  this  case,  but  no  attempt 
was  made  by  the  mortgagee  to  transfer  to  his  assignee  his  interest  in 
the  policy  of  insurance  until  after  the  risk  which  it  insured  had  de- 
termined.     The  judgment  of  the  court  below  should  be  affirmed. 


III.  A   Contract  Essentially  of  Indemnity ' 


CHICKASAW  COUNTY  FARMERS'  MUT.  FIRE  INS. 

CO.  v.  WELLER. 

(Supreme  Court  of  Iowa,  1896.    98  Iowa,  731,  68  N.  W.  443.) 
See  post,  p.  307,  for  a  report  of  the  case. 

7  For  a  discussion  of  principles,  see  Vance  on  Insurance,  §  28. 


THE  NATURE  OF  THE  CONTRACT  OF  LIFE  INSURANCE      19 


IV.  The  Nature  of  the  Contract  of  Life  Insurance ' 


NYE  V.  GRAND  LODGE  A.  O.  U.  W. 

(Appellate  Court  of  Indiana,  1S94.     9  Ind.  App.  131,  36  N.  E.  429.) 

Action  by  Nancy  J.  Nye  against  the  Grand  Lodge  Ancient  Order 
of  United  Workmen  and  Joseph  H.  Clark  and  others.  Plaintiff's 
husband  held  a  certificate  of  membership  in  the  order  for  $2,000.  This 
he  sold  and  assigned  to  Clark  for  $300.  Clark  surrendered  the  cer- 
tificate and  procured  the  issuance  of  a  new  certificate  naming  himself 
as  beneficiary.  Before  the  death  of  plaintiff's  husband  Clark  paid  in 
dues  and  assessments  to  keep  the  certificate  alive  $135.  This  action 
was  brought  by  the  widow  of  the  insured  to  recover  the  amount  due 
on  the  certificate.  The  defendant  association  interpleaded  and  paid 
the  sum  due  into  court.  From  a  judgment  awarding  the  fund  to  the 
defendant  Clark,  plaintiff  appeals. 

LoTz,  j,9  *  *  *  There  is  a  marked  conflict  between  the  adjudi- 
cated cases  bearing  upon  some  of  the  propositions  here  involved. 
Owing' to  this  conflict,  the  questions  here  presented  are  not  free  from 
difficulty.  In  considering  them  we  may  be  materially  aided  by  a  brief 
recurrence  to  the  origin  and  growth  of  the  business  of  insurance  and 
of  the  principles  which  underlie  it.  Nearly  every  kind  of  property  is 
exposed  to  injury  or  destruction.  Of  those  causes  which  produce 
disaster,  the  most  common  are  fire,  shipwreck,  and  premature  death. 
A  person  in  good  health,  in  the  full  possession  of  all  his  faculties, 
has  the  power  to  earn  and  accumulate  property.  These  future  earn- 
ings may  be  of  great  value  to  those  dependent  upon  him,  or  to  his 
creditors.  These  earnings  may  be  destroyed  by  his  premature  death. 
Life  insurance  has  for  its  object  the  protection  of  these  future  earn- 
ings. 

In  the  complexity  of  modern  society,  property  may  also  be  exposed 
to  certain  artificial  losses,  such  as  insolvencies,  failure  of  title,  and  the 
like.  The  exposure  of  property  to  these  various  hazards  may  be 
very  common,  but  loss  actually  occurs  in  comparatively  few  instances. 
It  is  difficult  or  impossible  to  predict  or  prevent  the  happening  of  the 
events  which  produce  the  loss,  but  it  is  frequently  of  the  greatest  mo- 
ment to  those  most  deeply  concerned  to  guard  against  the  loss  which 
their  occurrence  entails.  This  end  may  be  accomplished  by  means  of 
a  general  fund  obtained  by  imposing  a  small  contribution  upon  the 
many  who  are  exposed  to  the  common  peril,   from  which   the   few 

8  For  discussion  of  principles,  see  Vance  on  Insurance,  §  29.  See,  also, 
Cooley,  Briefs  on  the  Iawv  of  Insurance,  vol.  1,  pp.  85-97. 

9  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


20  THE    NATURE   AND   REQUISITES   OF   THE   CONTRACT 

who  actually  suffer  may  be  made  whole.  To  secure  this  indemnity 
against  loss  gave  rise  to,  and  lies  at  the  foundation  of,  the  business 
of  insurance. 

As  a  business,  it  is  the  system  of  distributing  losses  upon  the  many 
who  are  exposed  to  the  common  hazard.  Its  importance  has  grown 
with  the  extension  of  trade  and  commerce  and  the  necessities  of  civil- 
ized life.  Marine  underwriting  lays  claim  to  high  antiquity.  Traces 
of  its  existence  are  found  under  the  early  Roman  emperors.  It  came 
into  prominence  among  the  Lombards  of  northern  Italy  during  the 
revival  of  commerce  in  the  twelfth  and  thirteenth  centuries.  The 
principles  and  methods  of  marine  insurance  were  easily  and  readily 
extended  to  the  hazards  which  surrounded  like  property  upon  land. 
The  controlling  principle  in  a  contract  of  fire  or  marine  insurance  has 
ever  been  that  of  indemnity.  The  insurer  contracts  to  indemnify  the 
assured  for  what  he  may  actually  lose  by  the  happening  of  the  events 
upon  which  that  insurer's  liability  is  to  arise.  Under  no  circumstance 
is  the  assured,  in  theory,  permitted  to  make  a  profit  of  his  loss.  If 
this  were  not  so,  the  two  parties  to  the  contract  would  not  have  a 
common  interest  in  the  preservation  of  the  thing  insured,  and  the 
contract  would  create  a  desire  for  the  happening  of  the  event  insured 
against.  When  the  insured  can  only  receive  compensation  for  the 
loss  which  he  may  actually  sustain,  the  temptation  to  defraud,  and 
carelessness  in  exposing  the  property,  are  removed. 

Life  insurance,  according  to  the  authorities,  is  of  later  origin  than 
fire  and  marine  insurance,  but  the  same  general  principles  which  un- 
derlie them  govern  life  insurance.  The  indemnity  feature  in  life  in- 
surance is  not  always  apparent.  Indeed,  the  great  weight  of  au- 
thority is  to  the  effect  that  the  element  of  indemnity  is  not  neces- 
sary to  support  a  contract  of  life  insurance.  Dalby  v.  Assurance  Co., 
15  C.  B.  365;  Insurance  Co.  v.  Bailey,  13  Wall.  616,  20  L.  Ed.  501 ; 
Loomis  V.  Insurance  Co.,  6  Gray  (Mass.)  396 ;  Lord  v.  Dall,  12  Mass. 
118,  7  Am.  Dec.  38;    Insurance  Co.  v.  Johnson,  24  N.  J.  Law,  576. 

In  Biddle  on  Insurance  (section  185)  it  is  said  that  "it  may  be  laid 
down  as  nearly  the  universal  rule  that  at  the  present  time,  either  by 
statute  or  judicial  decision,  an  interest  is  necessary  to  support  a  life 
policy ;  and  it  may  be  asserted  with  the  same  universality  that  the 
courts  have  decided  that  a  life  policy  is  not  a  contract  of  indemnity." 
The  interest  which  one  has  in  his  own  life,  or  in  the  life  of  another, 
(unless  it  be  a  debtor,)  is  difficult  to  estimate  in  dollars  and  cents ; 
hence  it  is  said  that  strict  indemnity  finds  no  place  in  life  insurance. 

Mr.  May,  in  his  excellent  work  on  Insurance  (section  7),  takes  issue 
with  the  current  authorities,  and  logically  shows  that  there  is  no 
difference  between  valued  policies  in  fire  and  marine  insurance  and  a 
policy  of  life  insurance.  In  each  case  the  value  of  the  interest  is 
agreed  upon  in  advance,  and  the  purpose  of  the  contract  is  to  indem- 
nify the  insured  to  the  extent  of  the  agreed  value.  Life  insurance 
has  been  defined  to  be  a  contract  in  which  one  party  agrees  to  pay  a 


THE  NATURE  OF  THE  CONTRACT  OF  LIFE  INSURANCE      21 

given  sum  upon  the  happening  of  a  particular  event  contingent  upon 
the  duration  of  human  life,  in  consideration  of  the  immediate  pay- 
ment of  a  smaller  sum,  or  certain  equivalent  periodical  payments,  by 
another.       Buny.  Ins.  1 ;    Dalby  v.  Assurance  Co.,  supra. 

Life  insurance  and  fire  and  marine  insurance  have  much  in  com- 
mon, and  yet  there  are  essential  differences  between  it  and  them.  In 
the  latter,  the  loss  may  or  may  not  occur,  and,  should  it  occur,  it 
may  be  total  or  partial ;  while  in  the  ordinary  life  insurance  the  event 
insured  against  is  certain  to  occur,  and  the  time  of  the  happening  is 
the  only  contingent  element.  The  person  for  whose  benefit  the  insur- 
ance is  written,  his  heirs  or  assigns,  is  certain  to  realize  the  sum 
named  in  the  contract.  As  the  expectancy  of  life  decreases,  the  value 
of  the  policy  increases. 

The  reverse  of  this  is  true  in  fire  and  marine  insurance.  As  the 
time  for  which  the  policy  was  written  grows  shorter,  its  value  de- 
creases. Insurance  is  sometimes  spoken  of  as  an  aleatory  contract,  or 
one  involving  risk  or  speculation ;  and  it  certainly  is  a  contract  of 
mutual  risk,  wherein  the  premium  is  risked  against  the  chance  of  loss. 
But  it  is  not  ordinarily  a  wagering  or  gambling  contract.  Although 
risk  is  of  the  essence  of  the  contract,  it  exists  before  the  contract  is 
executed,  and  the  assured  is  moved  to  effect  the  contract  by  reason 
of  the  existence  of  the  risk,  while  in  a  purely  wagering  contract  the 
risk  is  created  by  the  contract  itself.  If  the  assured  have  no  interest 
whatever  in  the  thing  or  life  insured,  he  sustains  no  risk.  The  thing 
or  the  life  which  may  be  the  subject  of  insurance,  it  is  true,  is  ex- 
posed to  the  hazard  of  loss;  still  the  person  who  has  no  interest 
therein  does  not  bear  the  risk.  If  one  take  out  a  policy  of  insurance 
upon  the  life  of  a  person  in  whom  he  has  no  interest  whatever,  his 
risk  is  created  by  the  contract  itself,  and  it  falls  within  the  category 
of  wagering  or  gambling  contracts. 

It  has  become  a  fixed  rule  in  life  insurance  that  the  assured  must 
have  an  interest  of  some  kind  in  the  life  of  the  person  insured  in  or- 
der to  take  the  policy  out  of  the  category  of  wagering  contracts.  An- 
other reason  sometimes  given  for  this  rule  is  that  it  is  against  public 
policy,  and  has  a  demoralizing  influence  for  one  person  to  be  inter- 
ested in  the  death,  rather  than  the  life,  of  another.  This  latter  rea- 
son is  based  upon  the  supposition  that  the  temptation  on  the  part  of 
the  assured  to  destroy  the  life  of  the  insured  must  be  counterbalanced 
by  the  existence  of  an  insurable  interest  in  the  life  of  the  insured. 

This  doctrine  that  the  assured  must  have  an  interest  in  the  life  of 
the  person  insured  is  expressly  condemned  by  Mr.  Cook  on  Life  In- 
surance (section  58).  He  characterizes  it  as  a  false,  artificial,  and 
confusing  restriction  as  to  the  class  of  persons  who  may  obtain  the 
benefit ;  and  concerning  the  last  reason  he  says :  "But  the  theory 
that  it  is  contrary  to  public  policy  that  one  person  should  have  an 
expectation  of  a  benefit  conditioned  on  the  happening  of  the  death  of 
another  finds  little,  if  any,  support  from  the  rules  applied  to  analogous 


22  THE   NATURE   AND    REQUISITES   OF   THE   CONTRACT 

cases,  for  it  is  just  this  expectation  that  exists  in  case  of  a  devise  or 
legacy,  or  in  case  of  dower  or  other  life  tenancies ;  yet  it  never  seems 
to  have  been  seriously  suggested  that,  on  that  ground,  devises,  leg- 
acies, or  life  tenancies  are  invalid  or  contrary  to  public  policy." 

The  view  maintained  by  Mr.  Cook  is  supported  by  the  adjudication 
of  Ireland,  New  Jersey,  Rhode  Island,  and  perhaps  some  other  states. 
The  rule  adopted  by  the  courts  of  England  and  of  the  United  States 
generally,  and  by  the  supreme  court  of  this  state,  is  that  the  assured 
must  have  an  insurable  interest  in  the  life  of  the  person  insured.  In- 
surance Co.  v.  Hazzard,  41  Ind.  116,  13  Am.  Rep.  313;  Insurance 
Co.  v.  Sefton,  53  Ind.  380 ;  Insurance  Co.  v.  Volger,  89  Ind.  572,  46 
Am.  Rep.  185.     *     *     *     Judgment  affirmed/" 


V.  The  Nature  of  Mutual  Benefit  Insurance** 


DANIHER  v.  GRAND  LODGE  A.  O.  U.  W. 
(Supreme  Court  of  Utah,  1894.    10  Utah,  110,  37  Pac.  245.) 

Action  by  Dennis  Daniher  against  the  Grand  Lodge  Ancient  Order 
of  United  Workmen,  Jurisdiction  of  Nevada,  and  all  individual  mem- 
bers of  all  lodges  within  said  jurisdiction  subordinate  to  and  under 
the  control  of  said  Grand  Lodge  A.  O.  U.  W.  of  Nevada. 

Bartch,  J.^^  The  plaintiff  brought  this  action  to  recover  $2,000, 
the  amount  of  a  beneficiary  certificate  issued  by  the  defendants  to 
Jerry  T.  Daniher,  who  designated  the  plaintiff,  his  father,  as  his  ben- 
eficiary, to  whom  payment  should  be  made  after  his  death.  Jerry  T. 
Daniher  died  November  18,  1888,  and  thereafter  demand  was  made 
and  payment  refused.  Upon  the  trial  of  the  cause  the  court  entered 
judgment  in  favor  of  the  plaintiff,  and  thereupon  the  defendants  ap- 
pealed. 

The  first  material  question  to  be  determined  is  whether  there  ex- 
isted, between  the  deceased  and  the  appellants,  a  contract  of  insur- 
ance, which  includes  the  question  whether  the  Ancient  Order  of 
United  Workmen  is  in  any  sense  to  be  classed  as  a  mutual  life  in- 

10  The  court  held  that  the  assigument  was  valid,  and  not  a  mere  wagering 
contract,  and  affirmed  the  judgment  awarding  the  fund  to  the  assignee. 

For  a  discussion  of  the  nature  of  life  insurance  contracts  as  contracts 
of  indemnity  when  issued  to  secure  a  creditor,  see  Exchange  Bank  v.  Loh, 
104  Ga.  44G.'  31  S.  E.  450.  44  L.  R.  A.  372  (1898). 

Assigimient  of  life  policies,  see  post,  p.  301. 

11  For  discussion  of  principles,  see  Vance  on  Insurance,  §  30.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  25-38. 

12  Part  of  the  opinion  is  omitted. 


THE    NATURE    OF   MUTUAL   BENEFIT    INSURANCE  23 

surance  company.  It  is  shown  by  the  record  that  the  association  is 
a  voluntary,  unincorporated,  beneficial  and  benevolent  society.  Under 
its  constitution  and  by-laws,  it  is  designed  to  promote  the  welfare  of 
its  members,  and  protect  those  dependent  upon  them.  One,  if  not  its 
principal,  object,  is  to  provide  for  the  payment  of  a  stipulated  sum 
to  the  beneficiaries  of  its  deceased  members.  Its  governing  bodies 
consist  of  a  supreme  lodge,  of  grand  lodges,  and  of  subordinate 
lodges.  It  is  the  province  of  the  supreme  lodge  to  prescribe  and  de- 
termine the  rights,  privileges,  and  duties  of  the  members  of  the  so- 
ciety and  of  the  beneficiaries  of  deceased  members.  Grand  lodges  are 
organized  and  exist  under  its  authority,  and  subject  to  the  constitu- 
tion and  general  laws  of  the  order,  in  such  countries,  states,  terri- 
tories, and  districts  as  the  supreme  lodge  may  determine.  A  grand 
lodge  has  original  jurisdiction,  within  its  territory,  over  all  matters 
pertaining  to  the  welfare  of  the  order,  and,  for  the  government  of 
itself  and  its  subordinate  lodges,  may  adopt  constitutions,  by-laws, 
rules,  and  regulations,  and  may  alter  and  amend  the  same.  It  exer- 
cises control  and  supervision  over  the  subordinate  lodges  within  its 
jurisdiction.  The  defendant  grand  lodge,  jurisdiction  of  Nevada,  has 
control  over  and  supervision  of  all  the  subordinate  lodges  in  the  states 
of  Nevada,  Idaho,  Wyoming,  Montana,  and  in  the  territory  of  Utah. 
Under  the  constitution  and  by-laws  of  the  order,  there  is  estab- 
lished a  beneficiary  fund  for  the  benefit  of  all  members  in  good  stand- 
ing, and  each  member  who  complies  with  the  rules  and  regulations  of 
the  order  is  entitled  to  a  benefit  certificate  in  the  sum  of  $2,000,  pay- 
able, at  the  death  of  the  member,  to  the  person  designated  by  him  as 
his  beneficiary.  These  certificates  are  issued  by  virtue  of  the  power 
vested  in  the  grand  lodge,  in  the  nature  of  mutual  benefit  insurance, 
of  which  the  members  of  the  order  may  avail  themselves.  The  ben- 
eficiary fund  is  maintained  by  assessments  upon  the  individual  mem- 
bers. Under  the  rules  and  by-laws  of  the  lodge,  all  assessments  are 
dated  on  the  1st  day  of  the  month,  and  the  sum  of  one  dollar  is  levied 
upon  each  member  for  each  death  which  occurred  during  the  preced- 
ing month.  Notice  of  assessments  must  be  served  personally  or  by 
mail,  on  or  before  the  8th  day  of  the  month  in  which  the  assessments 
were  made.  Then  it  is  incumbent  upon  each  member  to  pay  the  same 
on  or  before  the  28th  day  of  the  month,  and,  if  he  fails  to  do  so,  he 
shall  stand  suspended  from  all  the  rights,  benefits,  and  privileges  of 
the  order.  Any  member  thus  suspended  may  be  reinstated  at  any 
time  within  30  days  from  the  date  of  suspension  by  paying  all  as- 
sessments then  remaining  unpaid,  and,  after  30  days,  but  within  3 
months,  by  paying  all  assessments  in  arrear  and  pending,  and  furnish- 
ing a  certificate  of  good  health.  Any  suspended  member,  after  the  ex- 
piration of  three  months  from  the  date  of  his  suspension,  can  only 
be  reinstated  upon  examination  and  recommendation  of  the  medical 
examiner,  as  in  the  original  instance,  and  at  the  expiration  of  six 


24  THE    NATURE   AND    REQUISITES   OF   THE    CONTRACT 

months  from  the  date  of  his  suspension  his  beneficiary  certificate  shall 
be  annulled.     *     *     * 

Thus,  from  an  examination  of  the  record,  it  is  clear  that  the  or- 
der has  assumed  the  characteristics  of  a  fraternal  organization,  but  it 
is  also  equally  clear  that  it  has  embodied  within  its  constitution  and 
by-laws  many  of  the  incidents  of  a  mutual  life  insurance  company, 
and  these  apparently  predominate.  The  controlling  object  of  the  or- 
der seems  to  be  the  providing  a  beneficiary  fund,  out  of  which  a 
certain  stipulated  sum  is  to  be  paid  to  the  beneficiary  of  each  member 
in  good  standing,  upon  the  happening  of  a  contingency.  Good  health 
is  a  requisite  to  become  a  member,  and  every  application  for  member- 
ship must  be  accompanied  by  a  physician's  certificate  to  that  effect. 
That  an  applicant  is  insurable  is  one  of  the  qualifications  for  admis- 
sion, and  when  he  is  admitted  into  full  membership  a  certificate  in  the 
nature  of  an  insurance  policy  is  issued  to  him,  and  he  cannot  main- 
tain his  membership  without  keeping  such  certificate  in  force  by  the 
payment  of  his  assessments  and  dues.  The  assessments  are,  in  their 
nature,  premiums,  the  nonpayment  of  which  works  a  forfeiture  of  the 
insurance. 

Very  ample  and  exacting  provisions  are  contained  in  the  constitu- 
tion and  by-laws  in  relation  to  the  beneficiary  fund,  to  enforce  pay- 
ment of  assessments  upon  the  death  of  a  member,  while  the  other 
declared  objects  of  the  association  seem  to  be  almost  without  provi- 
sion for  enforcement.  It  is  evident  from  these  provisions  and  re- 
quirements that  the  main  object  of  the  order  is  protection  to  the  ben- 
eficiaries of  its  deceased  members  by  insurance,  and  that  its  fraternal 
charter  is  merely  incidental.  The  contract  made  between  this  associ- 
ation and  each  of  its  members  by  issuing  a  beneficiary  certificate,  as 
shown  by  the  record  in  this  case,  does  not  essentially  differ  from  an 
ordinary  contract  of  mutual  life  insurance.  The  life  of  the  member 
is  the  subject  insured,  and  the  risk  is  death.  The  sum  to  be  paid  is 
certain,  and  so  also  are  the  assessments  to  be  paid  during  the  continu- 
ance of  the  risk.  There  is  an  absolute  undertaking  to  pay  the  ben- 
eficiary designated,  upon  the  happening  of  the  contingency,  unless 
forfeiture  has  resulted  by  nonpayment  of  dues  or  assessments.  The 
conclusion  is  inevitable  that  it  is  an  insurance  contract,  and  that 
the  association  is,  in  effect,  a  mutual  life  insurance  company.  The 
rights  of  the  parties  to  this  suit  must  therefore  be  determined  by  the 
law  applicable  to  mutual  life  insurance  corporations.  Bac.  Ben.  Soc. 
§  52 ;  State  v.  Miller,  66  Iowa,  26,  23  N.  W.  241 ;  Comm.onwealth 
V.  Wetherbee,  105  Mass.  149;  State  v.  Bankers'  &  M.  Mut.  Ben. 
Ass'n,  23  Kan.  499 ;  McCorkle  v.  Association,  71  Tex.  149,  8  S.  W. 
516.     *     *     *     Judgment  affirmed. 


THE    CONTRACT   OF    REINSURANCE  25 


VI.  The  Contract  of  Reinsurance 


13 


Appeal  of  GOODRICH. 
(Supreme  Court  of  Pennsylvania,  1885.     109  Pa.  523,  2  Atl.  200.) 

On  January  31,  1876,  a  petition  was  presented  by  the  insurance  com- 
missioner to  wind  up  the  Penn  Fire  Insurance  Company,  for  being 
fraudulently  conducted  and  insolvent.  Proceedings  were  suspended 
to  allow  it  to  execute  a  contract  with  La  Caisse  Generale  des  Assur- 
ances Agricole  et  des  Assurances  contre  I'lncendie,  whereby  it  was 
agreed  that  in  consideration  of  $10,000,  the  receipt  of  which  was  ac- 
knowledged, "a  policy  of  insurance  is  to  be  issued  by  La  Caisse  Gen- 
erale," etc.,  "reinsuring  the  outstanding  risks  of  the  said  Penn  Fire 
Insurance  Co. ;"  the  amount  over  and  above  $10,000  necessary  to 
reinsure  its  outstanding  risks  to  be  paid  on  or  before  60  days.  In  a 
more  formal  contract  made  a  day  or  two  later,  it  was  also  agreed 
that  "the  policy  of  reinsurance  to  be  issued  to  the  Penn  Fire  Insurance 
Company  shall  be  on  the  following  conditions,  viz. :"  That  the  rein- 
surance should  extend  to  40  days;  and  if  then  a  certain  portion  of 
the  balance  of  the  premiums  should  not  be  paid,  the  Hability  of  the 
Caisse  Generale  should  cease ;  that  the  Penn  Company  will  turn  over 
all  books,  reports,  registers,  etc.;  and  that  the  Caisse  Generale  will 
assume  the  care  of  the  adjustment  of  all  losses  which  may  occur  un- 
der the  policies  of  the  said  Penn  Company,  which  are  thereby  to  be 
reinsured.  Within  the  40  days  the  steamer  Mary  Bell,  owned  by  Ralph 
Hicks,  Richard  Sinnot,  and  Alfred  Grissom,  Jr.,  and  property  be- 
longing to  Henry  C.  Goodrich  and  William  B.  Nevins,  trading  as  Good- 
rich &  Nevins,  was  totally  destroyed  by  fire.  The  Caisse  Generale 
paid  the  amount  of  the  losses  which  occurred  during  the  40  days  on 
suit  by  receiver  of  the  Penn  Company.  This  fund  is  claimed  by  the 
owners  above,  the  appellants,  and  also  by  the  general  creditors  of  the 
Penn  Company.  The  auditor  reported  in  favor  of  the  general  cred- 
itors. Complainants  excepted  to  the  report,  but  it  was  confirmed  by 
the  court,  whereupon  this  appeal  was  taken. 

Clark,  J.^*  The  only  question  raised  by  the  several  assignments  of 
error  in  this  case  is  whether  or  not,  in  the  distribution  of  the  assets  of 
the  Penn  Fire  Insurance  Company  of  Philadelphia  in  the  hands  of  an 
assignee,  the  appellants  are  entitled  to  any  preference  over  the  general 
creditors  of  the  company.     *     *     * 

13  For  discussion  of  principles,  see  Vance  on  Insurance,  §  31.     See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3932  et  seq. 
i*Part  of  the  opinion  is  omitted. 


26  THE    NATURE    AND    REQUISITES    OF   THE    CONTRACT 

"Reinsurance"  is  properly  applied  to  an  insurance  effected  by  one 
underwriter  with  another,  the  latter  wholly  or  partially  indemnifying 
the  former  against  the  risks  which  he  has  assumed ;  that  is  to  say, 
after  an  insurance  has  been  effected  the  insurer  may  have  the  subject 
of  insurance  reinsured  to  him  by  some  other.  There  is  in  such  case, 
however,  no  privity  between  the  original  insured  and  the  reinsurer ;  the 
latter  is  in  no  respect  liable  to  the  former  as  a  surety  or  otherwise ; 
the  contract  of  insurance  and  of  reinsurance  being  totally  distinct  and 
disconnected.  But  while  the  contract  is  one  of  indemnity  simply,  in 
which  the  insurer  is  to  be  protected  to  the  extent  of  his  loss,  when 
the  loss  is  incurred  and  ascertained,  the  reinsurer  must  pay  the  amount. 
The  insurer  may  at  once,  without  payment  to  the  original  assured,  re- 
sort to  his  action.  Fame  Ins.  Co.'s  Appeal,  83  Pa.  396.  Even  if  the 
insurer  fail,  or  become  insolvent,  so  that  his  insured  receives  only  a 
dividend,  however  small,  the  reinsurer  can  gain  nothing  by  this,  but 
must  pay  the  amount  of  the  loss  to  the  first  insurer.  Hastie  v.  De 
Peyster,  3  Caines  (N.  Y.)  190;  Hone  v.  Mutual  Safety  Ins.  Co.,  1 
Sandf.  (N.  Y.)  137,  affirmed  in  court  of  appeals  sub  nom.  Mutual 
Safety  Co.  v.  Hone,  2  N.  Y.  235 ;  3  Kent,  Comm.  279 ;  Marsh.  Ins. 
143.  So,  in  Herckenrath  v.  American  Ins.  Co.,  3  Barb.  Ch.  (N.  Y.) 
63,  Chancellor  Walworth  decided  that  "where  an  insurance  company 
has  underwritten  a  policy,  and  afterwards  causes  itself  to  be  reinsured, 
and  after  the  loss  of  the  property  insured  such  company  becomes  in- 
solvent, the  person  originally  insured  has  no  equitable  lien  upon  the 
sum  of  money  due  on  the  contract  of  reinsurance ;  but  that  fund  be- 
longs to  all  the  creditors  of  the  insolvent  company  ratably." 

These  are  familiar  principles  of  insurance  law,  and  are  not  now 
anywhere  doubted.  If,  therefore,  the  contract  between  La  Caisse  Gen- 
erale,  etc.,  and  the  Penn  Fire  Insurance  Company  was  for  a  policy 
of  reinsurance,  properly  so  called,  the  appellants  could  have  no  pref- 
erable claim  or  lien  upon  the  fund  in  question  although  the  Penn 
Company  was  admittedly  and  hopelessly  insolvent. 

It  is  contended,  however,  by  the  appellants  that  the  contract  in  ques- 
tion, when  read  in  the  light  of  the  facts  attending  its  execution,  can- 
not, in  any  strict  sense,  be  considered  a  contract  for  reinsurance ;  that 
it  was  not  intended  to  provide  indemnity  to  the  company,  but  to  the 
individual  policy  holders,  and  that  the  policy  holders  can  claim  the 
advantage  of  this  so-called  reinsurance  for  themselves  directly  and 
exclusively ;  that  the  term  "reinsurance"  was  not  used  in  its  legal  or 
technical  sense,  but  in  a  different  sense,  defined  by  the  particular  facts 
which  induced  the  creation  of  the  contract,  and  that  the  reinsurance 
by  the  Caisse  Generale,  etc.,  was  in  fact,  although  not  so  expressed, 
a  conditional  assumption  of  the  business  of  the  Penn  Company. 

It  was  competent,  we  think,  for  the  Penn  Company,  acting  in  the 
interest  of  its  general  policy  holders,  with  or  without  authority,  in  view 
of  insolvency,  and  without  fraud,  to  effect  an  indemnity  for  their  in- 
dividual protection  in  case  of  loss  (Glen  v.  Hope  Mut.  Ins.  Co.,  56  N. 


THE    CONTRACT   OF   REINSURANCE  27 

Y.  379;  Fischer  v.  Same,  69  N.  Y.  161),  which,  even  after  loss,  they 
might  ratify  and  approve  (Flemming  v.  Marine  Ins.  Co.,  4  Whart.  59, 
33  Am.  Dec.  33 ;  Stillwell  v.  Staples,  19  N.  Y.  405 ;  1  Am.  Lead. 
Cas.  344)  ;  and  if  the  insurance  was  in  their  interest,  directly  for  their 
benefit,  and  free  from  any  additional  burden  or  obligation  on  their 
part,  ratification  might  be  presumed.  But  we  fail  to  find  anything 
in  the  words  of  the  contract,  in  the  special  circumstances  attending 
its  creation,  in  the  nature  of  the  transaction  itself,  or  in  any  rule  of 
public  policy,  that  would  justify  us  in  saying  that  the  contract  was 
any  other  than  a  contract  of  reinsurance,  in  the  proper  sense  of  that 
term.  The  contract  was  written  by  and  between  persons  on  both  sides 
actually  engaged  in  the  business  of  insurance — persons  conversant, 
doubtless,  with  the  meaning  of  terms  employed  in  the  practice  of  in- 
surance— and  the  presumption  is  a  fair  and  reasonable  one  that  words 
of  technical  or  special  import  were  by  them  properly  applied.  The 
words  "reinsure"  and  "reinsurance"  would  therefore  seem,  in  the  first 
instance  at  least,  to  characterize  the  contract,  and  to  point  out  the  ob- 
ject and  purpose  of  the  parties.  The  proper  signification  of  these  terms 
would,  of  course,  vary  with  the  clearly  manifested  intention  of  the  par- 
ties. But  the  contract  is  with  the  Penn  Company,  for  a  consideration 
moving  from  it,  providing  for  a  policy  to  the  Penn  Company  to  rein- 
sure its  risks.  There  is  no  provision  whatever  expressed  in  the  con- 
tract for  the  individual  indemnity  of  the  policy  holders,  nor  for  the 
insurance  of  their  property  for  them.  The  reinsurance  is  expressly 
upon  the  "outstanding  risks"  of  the  company.  The  contract  of  rein- 
surance, in  some  sense,  perhaps,  operates  upon  the  property  itself  rath- 
er than  the  risk,  but  the  fact  that  the  policy  was  to  be  upon  the  "risks" 
indicates  that  it  was  the  company's  insurable  interests  in  the  property 
which  formed  the  basis  of  the  insurance. 

It  is  true  that,  except  for  the  appellants'  losses  by  fire,  the  fund  of 
$6,000  would  not  have  been  realized,  but  this  is  incident  to  all  cases"  of 
reinsurance.  It  is  true,  also,  that  the  reinsurance  was  of  all  the  out- 
standing risks  of  the  company,  and  not,  as  is  usually  the  case,  of  any 
particular  part  of  them;  but  whether  a  company  shall  reinsure  the 
whole,  or  only  a  part,  of  its  risks  is  a  question  of  policy  for  the  com- 
pany, dependent  upon  its  purposes  for  the  future  or  its  circumstances. 
If  the  underwriter  wishes  to  change  his  business,  or  to  quit  the  country, 
or  to  avert  insolvency,  he  may  choose  to  reinsure  the  whole.  Under 
different  circumstances  he  may  choose  to  indemnify  himself  as  to  part 
only.  The  provision  that  the  Penn  Company  "will  turn  over  to  the 
Caisse  Generale  its  original  registers,  books,  reports,  and  other  papers 
in  any  way  relating  to  the  policies  thereby  insured,"  and  "that  the 
Caisse  Generale  will  assume  the  care  and  expense  of  the  adjustment 
of  all  losses  which  may  occur  under  the  policies  of  the  said  Penn 
Fire  Insurance  Company,  which  are  thereby  to  be  reinsured,"  are  con- 
sistent, we  think,  with  either  theory  of  the  case— as  consistent  with  one 
as  with  the  other— and  they,  therefore,  prove  nothing  either  way.    Such 


28  THE    NATURE    AND   REQUISITES   OF   THE   CONTRACT 

a  course  of  proceeding  may  be  rare,  but  cases  are  rare,  perhaps,  when 
the  reinsurance  is  upon  the  whole  list  of  the  underwriter's  risks,  and 
where  this  is  the  case  there  can  certainly  be  nothing  unreasonable  in 
the  provision.  We  think  there  is  nothing  on  the  face  of  the  contract 
itself  to  give  it  the  effect  claimed  for  it,  and  we  can  discover  nothing 
in  the  facts  which  led  up  to  its  execution  which  would  evidence  any 
intention    of   the    parties   different   from   what   is   plainly    expressed. 

*  >|:  * 

The  case  of  Glen  v.  Hope  Mut.  Ins.  Co.,  supra,  is  greatly  relied  on 
by  the  appellants,  but  that  case  is  materially  different  from  this.  By 
a  contract  duly  executed,  the  Hope  agreed  to  reinsure  the  Craftsman 
Company  on  all  risks  for  which  its  policies  were  outstanding,  and  also 
to  assume  all  such  policies,  and  to  pay  the  holders  thereof  all  such 
sums  as  the  Craftsman  might,  by  force  of  such  policies,  become  liable 
to  pay.  The  engagement  to  the  policy  holders  was  direct  and  express, 
and  the  liability  was  therefore  direct  and  exclusive.  This  case  was 
followed  by  Fischer  v.  Hope  Mut.  Ins.  Co.,  supra,  which  was  another 
action  on  the  same  contract,  and  the  rulings  in  the  former  case  were 
in  the  latter  recognized  and  approved. 

The  decree  of  the  court  of  common  pleas  is  affirmed,  and  the  appeal 
is  dismissed  at  the  costs  of  the  appellant.^ ^ 


JOHANNES  V.  PHCENIX  INS.  CO.  OF  BROOKLYN,  N.  Y. 

(Supreme  Court  of  Wisconsin,  1886.     66  Wis.  50,  27  N.  W.  414,  57  Am. 

St.  Rep.  249.) 

This  is  an  appeal  from  an  order  overruling  a  demurrer  to  the  com- 
plaint for  insufficiency,  as  against  the  appellant.  The  complaint  alleges 
that  July  1,  1883,  the  defendant  the  Standard  Fire  Office  of  London, 
Limited,  insured  the  plaintiff's  property  against  loss  or  damage  by  fire 
to  the  amount  of  $1,650  from  July  1,  1883,  to  July  1,  1886.  And  the 
plaintiff  further  alleges  that  subsequent  to  the  making  and  issuing  of 
said  policy  the  defendant  the  Phoenix  Insurance  Company  being  desir- 
ous of  acquiring  and  purchasing  the  business  and  good  will  of  its  co- 
defendant  herein,  and  the  defendant  the  Standard  Fire  Office  of  Lon- 
don, Limited,  aforesaid,  being  desirous  of  reinsuring  its  risks  upon 
property  in  the  United  States,  and  having  withdrawn  from  business 
in  the  United  States,  the  said  defendant  corporation,  on  or  about  the 
2d  day  of  January,  1884,  made  and  entered  into  an  agreement  in 
writing,  whereby  the  Phoenix  Insurance  Company,  aforesaid,  reinsured 
all  the  risks  of  the  Standard  Fire  Office  upon  property  situated  in  the 
L^nited  States  from  12  o'clock  noon,  in  New  York,  on  the  1st  day  of 
January,  A.  D.  1884,  and  agreed  that  all  losses  arising  under  the  policies 

15  Compare  Barnes  v.  Helda  Fire  Ins.  Co.,  56  Minn.  38,  57  N.  W.  314,  45 
Am.   St.  Kep.  438  (1893). 


THE   CONTRACT   OF   REINSURANCE  29 

of  the  Standard  Fire  Office  upon  property  situated  in  the  United  States 
should,  after  that  time,  be  borne  by  the  said  Phoenix  Insurance  Com- 
pany, and  should  be  paid,  satisfied,  and  discharged  by  it,  and  thereby 
reinsured  the  risk  upon  the  property  mentioned  in  the  policy  herein- 
before described,  and  agreed  that  the  loss  of  this  plaintifif  arising  there- 
under should  be  borne,  paid,  satisfied,  and  discharged  by  said  Phoenix 
Insurance  Company,  which  thereupon  became  owner  of  the  good  will, 
original  documents,  and  books  of  its  codefendant  herein,  relating  to 
the  risks  aforesaid,  and  assumed  control  of  the  same,  and  of  the  busi- 
ness pertaining  to  said  risks,  policies,  and  losses.  The  complaint  fur- 
ther alleges,  in  effect,  that  July  4,  1884,  and  while  said  policy  was  still 

in  force,  the  assured  property  was  destroyed  and  lost  by  fire,  etc. 
*     *     * 

Cassoday,  J.^®  a  policy  of  fire  insurance  is  a  contract  of  indemnity. 
Darrell  v.  Tibbitts,  5  Q.  B.  Div.  560.  By  such  contract  the  insurer 
agrees  to  compensate  the  assured  for  loss  by  fire  of  certain  property, 
for  a  given  time.  The  existence  of  such  contract  gives  the  insurer 
an  insurable  interest  in  the  property  insured,  coextensive  with  its  lia- 
bility. Delaware  Ins.  Co.  v.  Quaker  City  Ins.  Co.,  3  Grant,  Cas.  (Pa.) 
71 ;  New  York  Bowery  Fire  Ins.  Co.  v.  New  York  Fire  Ins.  Co.,  17 
Wend.  (N.  Y.)  359.  Here  the  Standard  Fire  Office  of  London  in- 
sured the  plaintifl:''s  property  for  three  years  from  July  1,  1883.  After 
doing  so  it  became  desirous  of  reinsuring  its  risks  upon  property  in 
the  United  States,  and  withdrawing  from  business  in  the  United  States. 
The  Phoenix  Insurance  Company  of  Brooklyn  was  at  the  same  time 
desirous  of  acquiring  and  purchasing  the  business  and  good  will  of 
the  Standard  Company.  Accordingly  the  two  companies  made  the 
agreement  set  forth  in  the  statement  of  facts,  on  January  2,  1884.  At 
that  time  the  plaintiff's  policy  had  two  years  and  a  half  more  to  run. 
Of  course  the  Standard  Company  had  an  insurable  interest  in  the 
plaintiff's  property  commensurate  with  its  liability.  The  agreement 
between  the  two  companies,  as  alleged,  was  based  upon  a  sufficient 
consideration.  Its  validity  is  not  assailed.  The  contention  is  that 
the  contract  between  the  two  companies  is  confined  strictly  to  them, 
and  that  the  plaintifif  under  his  policy  issued  by  the  Standard  has  no 
privity  in  the  contract  made  by  the  Phoenix,  and  can  maintain  no  action 
thereon  against  the  Phoenix.  In  other  words,  that  it  was  strictly  a 
contract  of  reinsurance  by  the  Standard  Company,  solely  for  its  own 
benefit,  and  not  for  the  benefit  of  any  of  its  then  existing  policy  holders 
in  the  United  States. 

In  support  of  such  contention  the  learned  counsel  for  the  appellant 
cites  several  cases.  *  *  *  Some  of  the  cases  cited  were  upon  con- 
tracts of  strict  reinsurance,  as  above  defined,  and  clearly  sustain  the 
position  of  counsel,  if  the  contract  here  is  to  be  so  restricted.  Hastie 
v.  De  Peyster,  3  Caines  (N.  Y.)    190;   Herckenrath  v.  American  M. 

16  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


30        THE  NATURE  AND  REQUISITES  OF  THE  CONTRACT 

Ins.  Co.,  3  Barb.  Ch.  (N.  Y.)  63;  New  York  Bowery  Fire  Ins.  Co. 
V.  New  York  Fire  Ins.  Co.,  supra ;  Hone  v.  Mutual  Safety  Ins.  Co.,  1 
Sandf.  (N.  Y.)  137;  s.  c,  2  N.  Y.  235;  Carrington  v.  Commercial  F. 
&  M.  Ins.  Co.,  1  Bosw.  (N.  Y.)  152;  Blackstone  v.  Alemannia  Fire 
Ins.  Co.,  56  N.  Y.  104;  Strong  v.  Phoenix  Ins.  Co.,  62  Mo.  289,  21 
Am.  Rep.  417;  Gantt  v.  American  Cent.  Ins.  Co.,  68  Mo.  503;  Dela- 
ware Ins.  Co.  V.  Quaker  City  Ins.  Co.,  supra. 

Thus,  in  Hone  v.  Mutual  Safety  Ins.  Co.,  supra,  the  defendant,  by 
the  policy  of  reinsurance,  "promised  and  agreed  to  make  good  to  the 
American  Mutual  Insurance  Company  all  such  loss  or  damage,"  etc. 
So,  in  the  case  cited  in  Bosworth  the  agreement  was  to  "reinsure  the 
American  Mutual  Insurance  Company  of  Amsterdam  upon  the  fol- 
lowing policies  issued  by  them,  loss,  if  any,  payable  to  the  assured  upon 
the  same  terms  and  conditions,  and  at  the  same  time,  as  are  contained 
in  the  original  policies."  A  description  of  the  several  policies  is  then 
given.  The  court,  at  general  term,  said:  "If  the  word  'assured,'  as 
used  in  this  contract,  means  the  party  reassured,  the  present  plaintiffs 
have  no  interest  in  the  contract,  and  no  right  to  maintain  an  action 
upon  it ;  *  *  *  "  but  "if  the  word  'assured'  does  not  mean  the 
party  'reinsured,'  and  that  party  only,  then  it  includes  and  embraces, 
not  only  the  plaintiffs,  but  also  nineteen  other  individuals  and  firms. 
By  the  contract  of  reinsurance  the  defendants  took  upon  themselves  the 
risks  which  the  corporation  reinsured  had  incurred  by  insuring  twenty 
separate  and  distinct  policies."  The  court  then  determined  that  the 
word  "assured,"  as  used,  meant  the  company  issuing  the  original  pol- 
icies and  obtaining  the  reinsurance,  and  not  any  of  such  policy  holders. 
In  Blackstone  v.  Insurance  Co.,  supra,  the  agreement  was  simply  to 
reinsure  the  company,  and  the  principal  contention  was  whether  the 
insurance  was  double  under  the  peculiar  wording  of  the  policy.  The 
same  is  true  of  Owens  v.  Sturges,  67  111.  366,  and  Insurance  Co.  v.  In- 
surance Co.,  38  Ohio  St.  11,  43  Am.  Rep.  413,  cited. 

But  in  the  case  before  us  the  contract  between  the  defendant  com- 
panies was,  as  it  seems  to  us,  something  more  than  a  mere  reinsurance. 
By  that  contract  the  Standard  Company  sold  and  turned  over  to  the 
Phoenix  its  entire  business,  and  the  good  will  of  that  business,  in  the 
United  States,  together  with  a  large  amount  of  bonds  and  other  prop- 
erty, in  consideration  of  which  the  Phoenix  thereby  "reinsured  all  the 
risks"  of  the  Standard  Company  "upon  property  situated  in  the  United 
States,  *  *  *  and  agreed  that  all  losses  arising  under  the  policies 
of  the  said  defendant  the  Standard  Fire  Office,  Limited,  upon  property 
situated  in  the  United  States  of  America,  should  after  that  time  (Jan- 
uary 1,  1884)  be  borne  by  the  said  Phoenix  Insurance  Company,  andl 
should  be  paid,  satisfied,  and  discharged  by  it,  *  *  *  and  agreed 
that  the  loss  of  this  plaintiff  arising  thereunder  should  be  borne,  paid, 
satisfied,  and  discharged  by  said  Phoenix  Insurance  Company;  which 
thereupon  became  owner  of  the  good  will,  original  documents,  and 
books  of  its  codefendant  herein   [the  Standard  Company]   relating  to 


THE    CONTRACT   OF   REINSURANCE  31 

the  risks  aforesaid,  and  assumed  control  of  the  same,  and  of  the  busi- 
ness pertaining  to  said  risks,  policies,  and  losses." 

Such  are  the  alleged  terms  of  the  contract  we  are  required  to  con- 
strue. The  losses  thus  arising  under  the  policies  could  only  "be  borne, 
paid,  satisfied,  andl  discharged"  by  the  Phoenix  in  a  direct  transaction 
with  the  policy  holders.  Even  a  payment  by  it  of  the  amount  of  the 
loss  to  the  Standard  Company  would  not  satisfy  or  discharge  the  plain- 
tiff's claim  for  such  loss  on  his  policy.  That  could  only  be  done  on 
payment  to  the  plaintiff.  It  seems  to  us  that  by  the  terms  of  the  con- 
tract, as  alleged,  the  Phoenix,  in  effect,  thereby  assumed  the  risk  cov- 
ered by  each  policy,  and  agreed  to  pay  any  loss  arising  under  each 
policy.  The  mere  fact  that  the  plaintiff  was  not  named  in  the  contract 
does  not  preclude  him  from  maintaining  an  action  upon  the  contract. 
*  *  *  In  Glen  v.  Hope  Mut.  Life  Ins.  Co.,  1  Thomp.  &  C.  (N.  Y.) 
463,  afifirmedl  56  N.  Y.  379,  the  defendant  had  agreed  with  the 
Craftsmen's  Assurance  Company  to  reinsure  the  latter  company  on 
all  its  risks  "for  which  policies  o^f  the  said  party  of  the  second  part 
[Craftsmen's  Assurance  Company]  are  outstanding  at  this  date,  and 
hereby  agree  to  assure  all  such  policies,  and  to  pay  the  holders  thereof 
all  such  sums  as  the  party  of  the  second  part  may,  by  force  of  such 
policies,  become  liable  to  pay,  *  *  *  the  liability  for  death  losses 
to  be  limited  to  such  deaths  as  may  occur  on  and  after  this  date ;"  and 
it  was  held  that  the  defendant  was  liable  on  the  contract  of  reinsur- 
ance directly  to  the  several  holders  of  policies  for  the  whole  amount 
insured  thereby.  The  same  doctrine,  upon  the  same  reinsurance  con- 
tract, was  reaffirmed  in  Fischer  v.  Hope  Mut.  Life  Ins.  Co.,  40  N.  Y. 
Super.  Ct.  291,  affirmed  69  N.  Y.  161.  It  seems  to  us  that  the  con- 
tract of  reinsurance  in  those  two  cases  was  substantially  like  the  one 
at  bar.  Those  actions  in  favor  of  such  policy  holders,  upon  such  con- 
tract of  reinsurance,  were  sustained  upon  the  authority  of  Lawrence 
V.  Fox,  20  N.  Y.  268,  and  similar  cases.  That  case  has  been  expressly 
followed  by  this  court.  Gray  v.  McDonald,  19  Wis.  217.  The  same 
principle  has  frequently  been  reiterated  by  this  court.  Putney  v. 
Farnham,  27  Wis.  187,  9  Am.  Rep.  459 ;  McDowell  v.  Laev,  35  Wis. 
171;  Bassett  v.  Hughes,  43  Wis.  319;  Kollock  v.  Parcher,  52  Wis. 
399,  9  N.  W.  67;  Hoile  v.  Bailey,  58  Wis.  450-452,  17  N.  W.  Z22; 
Town  of  Platteville  v.  Plooper,  63  Wis.  383,  23  N.  W.  581. 

The  principle  thus  sanctioned  in  these  cases  is  to  the  effect  that 
if,  on  the  receipt  of  a  good  and  sufficient  consideration,  A.  agrees  with 
B.  to  assume  and  pay  a  debt  of  the  latter  to  C,  then  C.  may  maintain 
an  action  directly  upon  such  contract  against  A.,  notwithstanding  C. 
is  not  privy  to  the  consideration  received  by  A.  We  think  the  case  at 
bar  comes  within  the  principle. 

The  order  of  the  circuit  court  is  affirmed. ^^ 

17  For  a  collection  of  authorities  respectine;  the  right  of  a  third  person 
for  whose  benefit  a  contract  is  made  to  maintain  action  thereon,  see  Win- 
ninghoff  v.  Wittig,  64  Wis.  ISO,  24  N.  W.  912  (1SS5). 


32  THE   NATURE   AND   REQUISITES   OF   THE    CONTRACT 

LONDON  ASSUR.  CORP.  v.  THOMPSON. 

(Court  of  Appeals  of  New  York,  1902.    170  N.  Y.  94,  62  N.  E.  1066.) 

Action  by  the  London  Assurance  Corporation  against  Joseph  W. 
Thompson.  From  a  judgment  of  the  appellate  division  (54  App.  Div. 
637,  67  N.  Y.  Supp.  1138)  affirming  a  judgment  for  defendant  on 
report  of  a  referee,  plaintiff  appeals. 

Vann,  J.^*  This  is  a  controversy  between  insurers,  which  turns 
upon  the  construction  of  a  policy  of  reinsurance.  The  plaintiff  is  a 
foreign  insurance  corporation,  and  the  defendant  is  one  of  several 
individual  underwriters,  who  issue  what  are  known  as  "Lloyd's  pol- 
icies," and  do  business  under  the  name  of  the  New  Jersey  State  Fire 
Association.  The  policy  of  the  plaintiff,  issued  to  Patterson,  Down- 
ing &  Co.,  covered  "all  risks  by  railroads  a°Vor  other  inland  convey- 
ances, and  in  warehouses,  yards,  or  elsewhere,  from  the  time  bills  of 
lading  are  signed  for  the  goods  until  the  same  shall  have  been  laden 
on  board  vessels  or  lighter  at  such  ports  for  shipment ;  on  rosin,  tur- 
pentine, and  other  goods  commonly  known  as  'naval  stores.'  *  *  * 
This  policy  also  to  cover  goods  as  herein  described,  the  property  of 
the  Downing  Co.,  or  in  which  said  company  may  be  interested  as  owner 
or  agent."    There  was  also  a  marine  risk,  which  is  not  here  important. 

The  policy  of  the  defendant  was  of  the  New  York  standard  form, 
whereby  the  underwriters  agreed  to  "reinsure  the  London  Assurance 
Corporation  *  *  *  against  all  direct  loss  or  damage  by  fire  *  *  * 
to  the  following  described  property  while  located  and  contained  as 
described  herein  and  not  elsewhere,  to  wit,  on  the  fire  risk  on  naval 
stores,  i.  e.,  rosin,  turpentine,  etc.,  in  barrels,  while  waiting  shipment, 
in  or  on  the  warehouses,  ^^'^/or  sheds  of  Dozening  &  Co.  at  Brwns- 
ziHck,  Georgia,  and  insured  under  policies  issued  by  the  London  As- 
surance Corporation,  marine  branch.  The  same  being  naval  stores  of 
other  parties  intended  for  foreign  or  domestic  shipment  for  which  the 
London  Assurance  Corporation  is  liable  under  the  terms  of  its  marine 
policies  issued  to  shippers.  It  is  the  true  intent  and  meaning  of  this 
policy  to  fully  indemnify  the  London  Assurance  Corporation  for  each 
and  every  loss  by  fire,  within  the  limits  above  named,  to  the  full  ex- 
tent of  its  interests  as  herein  described,  *  *  *  j^  consideration 
of  which,  and  the  indemnity  hereby  guarantied,  the  Londbn  Assur- 
ance Corporation  hereby  covenants  and  agrees  to  report  to  this  associa- 
tion at  the  end  of  each  month  the  total  amount  of  insurance  on  naval 
stores  that  has  been  written  by  said  corporation  in  the  ahove-descrihed 
-warehouses,  &c.,  and  to  pay  to  this  association  its  proportionate  part 
of  a  premium  at  and  after  the  rate  of  five  cents  for  every  one  hundred 
dollars  so  insured.  This  policy  is  subject  to  the  same  fire  risks,  con- 
is  Part  of  this  opinion  and  all  of  the  dissenting  opinion  of  Haight,  J.,  are 
omitted. 


THE    CONTRACT   OF    KEINSURANCK  33 

ditions,  interpretations,  valuations,  indorsements,  and  assignments  as 
are  or  may  be  assumed  or  adopted  by  the  London  Assurance  Corpora- 
tion, and  loss,  if  any,  payable  at  the  same  time  and  in  the  same  man- 
ner as  they  pay.  *  *  *  This  policy  shall  continue  to  protect  all 
merchandise  already  accepted  by  the  London  Assurance  Corporation, 
or  for  which  they  may  be  liable,  until  the  same  has  passed  beyond  the 
limits  of  this  policy." 

Of  the  part  thus  quoted  from  the  policy  the  words  in  italics  are  in 
manuscript,  and,  with  this  exception,  all  before  the  words  "to  wit" 
is  part  of  the  printed  form,  and  all  after  is  typewritten.  The  italicized 
words,  "  in  the  above-described  warehouse,  &c.,"  are  interlined  in  man- 
uscript in  the  typewritten  part. 

After  a  loss  had  occurred,  the  plaintiff  paid  Patterson,  Downing  & 
Co.  the  amount  called  for  by  their  policy,  and  then  brought  this  action 
to  recover  from  the  defendant  his  proportion  thereof,  according  to  the 
contract  of  reinsurance,  without  making  any  effort  to  reform  it.  The 
defendant,  however,  by  a  counterclaim,  sought  to  reform  it  in  his  in- 
terest, but  was  defeated,  and  the  attempt  is  now  immaterial. 

The  referee  adopted  the  short  form  of  decision,  but  found  specific- 
ally that  "a  typewritten  paper  purporting  to  set  forth  the  terms  upon 
which  said  reinsurance  was  made  was  prepared  by  the  plaintiff,  and 
furnished  to  the  said  New  Jersey  State  Fire  Association,  and  is  at- 
tached to  and  forms  part  of  the  said  policy  of  reinsurance ;  that  said 
reinsurance  is  thereby  declared  to  be"  (quoting  the  part  above  set 
forth,  describing  the  risk.)  The  referee  further  found  that  "a  fire 
occurred  at  said  yards  of  Downing  &  Co.,  in  Brunswick,  by  which  a 
large  quantity  of  turpentine  and  rosin  covered  by  the  policy  issued  by 
the  plaintiff  to  said  Patterson,  Downing  &  Co.  was  destroyed.  *  *  * 
None  of  the  rosin  which  was  destroyed  or  damaged  by  said  fire  was 
in  or  on  the  warehouses,  ^'^'^/or  sheds  of  Downing  &  Co.,  at  Bruns- 
wick, but  the  whole  thereof  was  deposited  or  stored,  while  waiting 
shipment,  in  the  open  yard  of  Downing  &  Co."  He  held  that  the 
rosin  was  not  covered  by  the  policy  of  reinsurance,  and  gave  judgment 
for  the  loss  on  the  turpentine  only. 

It  appeared  from  the  evidence  that  the  yard  of  Downing  &  Co.  was 
540  feet  long  by  190  feet  wide,  and  was  bounded  on  the  east  by  the 
tracks  of  a  railroad,  and  on  the  west  by  navigable  water  connected  with 
the  Atlantic  Ocean.  In  the  center  of  the  yard  was  a  shed  300  feet  long 
by  50  feet  wide,  and  contiguous  thereto  a  storehouse  of  the  same  width, 
and  100  feet  in  length.  The  plaintiff  claims  that,  as  the  contract  was 
one  of  reinsurance,  it  was  an  insurance  of  the  plaintiff's  identical  risk, 
and  not  an  independent  insurance  of  specific  property  in  a  defined  lo- 
cality ;  that  the  intention  was  that  the  reinsurance  should  cover  the 
plaintiff's  terminal  risk,  whatever  it  was,  and  that  the  words  "in  or 
on  the  warehouses  ^"Vor  sheds"  should  yield  to  an  intention  spring- 
ing conclusively  from  the  fact  that  the  plaintiff's  undertaking  was  to 
reinsure. 

CooLEY  Ins. — 3 


34  THE   NATURE   AND    REQUISITES   OF   THE    CONTRACT 

While  the  insurable  interest  of  the  plaintiff  depended  upon  the  pol- 
icy issued  by  it  to  Patterson,  Downing,  &  Co.,  it  does  not  follow  that 
the  contract  of  reinsurance  covered  all  the  risks  thus  assumed,  for 
the  policy  was  valid  if  it  covered  only  a  part  thereof.  Thus,  while  the 
policy  issued  by  the  plaintiff  covered  three  general  risks,— inland,  ter- 
minal, and  marine, — the  policy  issued  to  it  related  to  only  one  risk, 
which  was  the  terminal.  It  was  not  essential  that  the  contract  of  rein- 
surance should  cover  even  the  entire  terminal  risk  assumed  by  the 
plaintiff,  for  it  was  within  the  power  of  the  parties  to  agree  that  it 
should  cover  a  part  of  that  risk  only,  and  to  limit  it  to  the  property 
in  question  while  it  was  in  a  certain  place  at  the  terminal  port.  "When 
the  insurer  for  some  reason  finds  it  convenient  that  another  shall  bear, 
either  in  whole  or  in  part,  the  liability  to  the  insured  which  he  has 
assumed,  and  agrees  with  another  insurer  to  assume  the  whole  or  a 
part  of  his  liability  as  regards  the  insured,  it  is  termed  a  'contract  of 
reinsurance.'  "  1  Bid.  Ins.  §  378 ;  Insurance  Co.  of  North  America 
V.  Hibernia  Ins.  Co.,  140  U.  S.  565,  11  Sup.  Ct.  909,  35  h.  Ed.  517. 
While  a  contract  of  reinsurance  implies  the  same  subject-matter  of 
insurance  as  the  original  policy,  and  runs  against  perils  of  the  same 
kind,  it  need  not  be  for  the  identical  hazard  insured  against  in  the 
first  policy,  but  may  be  for  a  less,  though  not  for  a  greater,  risk.  Phil- 
adelphia Ins.  Co.  V.  Washington  Ins.  Co.,  23  Pa.  250,  253;  1  May, 
Ins.  §§  9,  11.  In  a  case  relied  upon  by  the  plaintiff,  one  company  rein- 
sured another  company  on  "their  interest  as  insured  under  their  policy" 
issued  to  the  owner  of  the  property,  and  hence  both  policies  necessarily 
covered  the  same  risk  by  express  description.  Jackson  v.  Insurance 
Co.,  99  N.  Y.  124,  1  N.  E.  539.  Reinsurance,  like  any  other  contract, 
depends  upon  the  intention  of  the  parties,  to  be  gathered  from  the 
words  used,  taking  into  account,  when  the  meaning  is  doubtful,  the 
surrounding  circumstances.     *     *     * 

The  general  rule  is  that,  as  insurance  policies  are  unilateral  contracts 
prepared  by  the  insurers,  they  are  responsible  for  any  ambiguity  aris- 
ing out  of  the  language  used  by  them,  and  hence,  in  construing  that 
language,  all  doubt  is  resolved  against  them,  because  they  created  it. 
Kratzenstein  v.  Assurance  Co.,  116  N.  Y.  54,  22  N.  E.  221,  5  L.  R.  A. 
799.  Ordinarily  an  ambiguity  in  the  policy  as  to  whether  the  rosin  was 
covered,  although  it  was  not  in  the  sheds  or  warehouses,  but  in  the  yard 
adjacent  thereto,  would  be  determined  against  the  insurer,  by  apply- 
ing the  rule  already  referred  to.  This  case,  however,  is  peculiar,  in 
that  the  words  of  the  policy  describing  the  risk  were  those  of  the  in- 
sured, and  not  of  the  insurer;  for,  as  the  referee  found,  the  former 
presented  a  typewritten  slip  to  the  latter,  and  asked  for  reinsurance 
according  to  the  terms  therein  stated,  and  the  defendant,  without  see- 
ing the  policies  issued  by  the  plaintiff,  issued  the  policy  in  suit  to  the 
plaintiff,  using  the  exact  language  which  it  had  itself  prepared.^ 

During  the  negotiations  which  led  to  the  policy  under  considera- 
tion there  was  no  discussion  as  to  the  nature  or  extent  of  the  risk. 


THE  CONTRACT  OF  REINSURANCE  35 

which  was  treated  by  both  parties  as  accurately  described  in  the  type- 
written slip  subsequently  attached  to  the  policy  as  a  part  thereof. 
There  was  discussion  in  relation  to  the  premium  to  be  charged  and 
other  matters,  but  none  as  to  the  risk  to  be  assumed ;  and  the  defend- 
ant had  no  means  of  knowing,  if  such  was  the  fact,  that  the  plaintiff 
wished  to  have  any  risk  covered,  other  than  that  described  in  the  slip. 
The  risk  thus  described  by  the  plaintiff  was  against  loss  or  damage  by 
fire  to  naval  stores  "while  located  and  contained  as  described  herein, 
and  not  elsewhere."  The  next  clause  is  definite  and  specific,  for  it 
limits  the  risk  to  "rosin,  turpentine,  etc.,  in  barrels,  while  waiting  ship- 
ment, in  or  on  the  warehouses  ^°'^/or  sheds  of  Downing  &  Co.,"  and 
insured  under  policies  issued  by  the  plaintiff.  "Within  the  limits  above 
named,"  reinsurance  was  made  "to  the  full  extent  of"  the  interests 
of  the  plaintiff,  "as  herein  described."  Finally  a  monthly  report  was 
required  from  the  plaintiff  of  the  total  amount  of  insurance  written  by 
it  on  naval  stores  "in  the  above-described  warehouses,  &c." ;  the  latter 
part,  as  if  to  avoid  all  possible  doubt,  having  been  interlined  by  the 
plaintiff  with  a  pen. 

The  risk  did  not  cover  all  rosin  belonging  to  Patterson,  Downing  & 
Co.,  nor  all  insured  by  the  plaintiff,  but  was  confined  to  rosin  while 
stored  in  a  certain  manner  and  in  a  certain  place.  No  rosin  was  cov- 
ered unless  it  was  "in  or  on  the  warehouses  ^^^/ot  sheds  of  Downing 
&  Co."  These  words  in  an  application  for  insurance  would  ordinarily 
constitute  a  warranty  that  the  property  insured  was  thus  situated,  and 
would  prevent  a  recovery  for  the  loss  of  any  situated  elsewhere.  Bryce 
V.  Insurance  Co.,  55  N.  Y.  240,  14  Am.  Rep.  249.  While  the  original 
policy  embraced  "all  risks  by  railroads  ^^<^/or  other  inland  convey- 
ances, and  in  warehouses,  yards  or  elsewhere,"  the  policy  of  reinsur- 
ance makes  no  mention  of  property  in  yards,  or  in  any  place  except 
warehouses  and  sheds.  Therefore,  unless  the  rosin  destroyed  was  in 
or  on  the  warehouses  or  sheds,  it  was  not  covered.  The  referee  found 
that  it  was  not  so  located,  but  he  also  found  that  it  was  deposited 
in  the  open  yard,  so  that  the  unanimous  affirmance  does  not  make  the 
former  finding  conclusive,  because  the  latter  presents  a  question  of 
law  as  to  the  meaning  of  the  policy.  Clearly  the  property  was  in 
neither  of  the  places  named  in  the  policy  of  reinsurance,  for  it  was 
in  a  large,  uncovered  inclosure  surrounding  the  warehouses  and  sheds, 
and  known  as  the  "yards." 

While  the  meaning  of  the  word  "in,"  as  used  in  the  reinsurance 
contract,  is  free  from  doubt,  that  of  the  word  "on"  is  not  clear.  The 
function  which  the  parties  intended  it  to  perform  is  uncertain.  It  does 
not  appear  in  the  sentence  requiring  a  monthly  report  of  insurance 
written  by  the  plaintiff,  for  that  is  limited  to  the  naval  stores  "in  the 
above-described  warehouses,  &c."  This  is  significant,  for  both  pol- 
icies were  open,  on  a  fluctuating  stock,  and  the  quantity  on  hand,  not 
exceeding  $80,000  in  value,  was  the  measure  of  the  defendant's  liabil- 
ity.    Why  should  the  report  be  limited  to  stock  in  the  warehouses, 


36  THE   NATURE   AND   REQUISITES   OF   THE    CONTRACT 

if  the  defendant  was  also  liable  for  stock  in  the  yards?  The  parties 
may  have  meant  that  the  barrels  of  rosin  were  to  be  on  the  inside  floors 
or  the  outside  platforms  of  the  buildings,  or  that  they  were  to  be  near 
or  about  the  buildings.  *  *  *  The  plaintiff  may  have  understood 
it  in  one  way,  and  the  defendant  in  another,  without  doing  violence 
to  reason.  In  other  words,  an  ambiguity  has  arisen  as  to  the  mean- 
ing of  the  policy,  which  the  courts  must  settle. 

As  the  terms  of  insurance,  including  the  description  of  the  risk, 
were  wholly  prepared  by  the  plaintiff,  an  insurer  of  wide  experience — 
for  it  has  done  business  since  1720— and  the  defendant  had  no  in- 
formation upon  the  subject,  except  the  typewritten  slip  furnished  by 
the  plaintiff,  we  think  that  the  responsibility  for  the  ambiguity  should 
be  borne  by  the  party  who  caused  it.  Janneck  v.  Insurance  Co.,  162 
N.  Y.  574,  57  N.  E.  182 ;  Herrman  v.  Insurance  Co.,  81  N.  Y.  184, 
37  Am.  Rep.  488;  Kratzenstein  v.  Assurance  Co.,  supra.  While  the 
defendant  adopted  the  plaintiff's  words  when  he  pasted  the  slip  in  the 
policy,  he  could  not  do  otherwise  if  he  made  any  contract  whatever. 
They  were  still  the  words  of  the  plaintiff,  the  doubt  caused  thereby 
was  caused  by  the  plaintiff,  and  the  defendant  should  not  be  required 
to  father  its  offspring.  The  principle  of  resolving  doubts  in  a  uni- 
lateral contract  by  throwing  the  burden  upon  the  one  who  caused  them 
applies  with  the  same  force  to  this  case,  under  its  peculiar  circum- 
stances, as  to  the  cases  cited,  and,  as  we  think,  furnishes  the  proper 
solution  of  the  controversy. 

The  judgment  should  be  affirmed,  with  costs. 


VII.  When  the  Contract  Is  Divisible^' 


SOUTHERN  FIRE  INS.  CO.  v.  KNIGHT. 

(Supreme  Court  of  Georgia,  1900.     Ill  Ga.  622.  36  S.  E.  821,  52  L.  R.  A. 

70,  78  Am.  St.  Rep.  216.) 

CoBB,  J.-*^  M.  A.  &  L.  L.  Knight  brought  suit  against  the  South- 
ern Fire  Insurance  Company  upon  a  policy  of  fire  insurance.  The 
case  came  on  for  trial,  and  at  the  conclusion  of  the  testimony  for  the 
plaintiffs  the  defendant  made  a  motion  for  a  nonsuit,  which  the  court 
overruled.  The  case  proceeded  to  trial,  and  resulted  in  a  verdict  for 
the  plaintiffs.     The  defendant  brings  the  case  here  upon  a  bill  of  ex- 

19  For  discussion  of  principles,  see  Vance  on  Insurance,  §  32.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  p.  1894  et  seq. 

20  Part  of  the  opinion  is  omitted. 


WHEN    THE   CONTRACT   IS   DIVISIBLE  37 

ceptions  assigning  error  upon  the  refusal  of  the  court  to  grant  a  non- 
suit.    *     *     * 

The  poHcy  sued  on  in  the  present  case  insured  both  the  stock  of 
goods  and  the  building  in  which  it  was  contained.  The  premium  due 
upon  the  policy  was  a  gross  sum.  The  question  arises,  therefore, 
whether  the  breach  of  a  warranty  relating  solely  to  the  goods,  and 
which  precludes  a  recovery  for  this  loss,  would  also  bar  a  recovery 
for  the  loss  of  the  building.  The  stipulation  prescribing  that  the  in- 
sured must  take  an  inventory  of  his  stock  provides  that  in  case  of 
failure  so  to  do  "this  policy  shall  be  null  and  void."  What  was  the 
intention  of  the  parties  with  respect  to  the  question  just  above  stated? 
If  this  intention  is  to  be  derived  from  the  language  used,  and  it  must 
be,  it  would  seem  to  be  clear  that  the  contract  was  entire  and  indivisi- 
ble, and  that  the  breach  of  a  condition  which  would  work  a  forfeiture 
would  avoid  the  entire  policy,  and  not  simply  a  portion  thereof.  The 
parties  contracted  that  "the  policy"  should  be  void  in  case  of  failure 
to  comply  with  the  iron-safe  clause.  The  policy  embraces  insurance 
upon  both  the  building  and  its  contents,  and  the  premium  is  payable 
in  a  gross  sum.  "If  the  consideration  to  be  paid  is  single  and  entire, 
the  contract  must  be  held  to  be  entire,  although  the  subject  of  the 
contract  may  consist  of  several  distinct  and  wholly  independent  items." 
2  Pars.  Cont.  *519.  It  was  competent  for  the  parties  to  make  two 
separate  and  distinct  contracts,  one  covering  the  goods,  and  the  other 
the  building,  but  they  did  not  see  proper  to  do  this.  They  combined 
the  two,  and  made  the  consideration  moving  towards  the  insurer  a 
gross  sum.  They  further  provided  that  the  contract,  not  a  part  of 
it,  should  be  void  under  certain  conditions.  It  may  perhaps  seein  to 
be  unreasonable  that,  simply  for  a  failure  to  take  an  inventory  of  the 
stock  of  goods,  the  plaintiff's  should  be  precluded  from  recovering  the 
value  of  the  building.  But  this  does  not  affect  the  question.  The 
question  is,  what  have  they  agreed  upon?  If  there  was  any  room  to 
doubt  as  to  the  intention  of  the  parties,  that  construction  which  is  most 
reasonable  and  most  consonant  with  justice  would  be  applied.  But 
there  is  none.  The  parties  have  deliberately  chosen  to  enter  into  an 
agreement  whereby  the  policy  shall  be  forfeited  if  the  insured  fails 
to  do  certain  things,  and  he  has  failed  to  comply  with  his  agreement. 
In  such  a  case  there  is  but  one  thing  for  the  courts  to  do,  and  that 
is  to  enforce  the  agreement  as  made. 

The  question  as  to  whether  a  policy  of  insurance  such  as  is  involved 
in  the  present  case  constitutes  a  separable  or  an  entire  contract  is  no 
new  question.  It  has  been  the  subject  of  numerous  decisions  by  the 
courts  in  this  country,  and  they  are  in  hopeless  and  irreconcilable 
conflict.  The  weight  of  authority  is  to  the  effect  that  the  contract 
is  entire,  and  that  the  breach  of  a  warranty  which  relates  solely  to 
one  class  of  property  will  avoid  the  entire  policy,  if  the  contract  so 
provides.     Text  writers  of  great  learning  and  ability  have,  after  re- 


38  THE    NATURE   AND    REQUISITES   OP   THE    CONTRACT 

viewing  the  decisions  on  both  sides  of  this  question,  reached  the  con- 
clusion that  the  contract  is  indivisible.  We  quote  the  following  from 
1  Wood,  Fire  Ins.  p.  384:  "It  is  difficuh  to  understand  how  it  can 
be  held  that  these  contracts  are  several,  when  a  gross  premium  is  paid 
for  the  entire  insurance.  The  court  cannot  say,  as  a  matter  of  law, 
neither  can  the  fact  be  shown,  that  the  insurer  would  have  been  sat- 
isfied to  take  the  risk  separately  at  the  same  premium.  By  consent- 
ing to  pay  a  gross  premium  for  the  insurance,  the  assured  has  signi- 
fied his  willingness  to  let  the  policy  stand  as  an  entire  contract,  sub- 
ject in  all  its  parts  to  the  conditions  imposed  by  the  insurer;  and  there 
is  neither  reason  nor  equity  in  permitting  the  assured,  after  he  has 
violated  one  of  the  conditions  of  the  policy  as  to  a  part  of  the  risk, 
to  turn  around  and  say  that  this  condition  only  affected  that  portion 
of  the  risk  to  which  the  breach  related."  Mr.  Ostrander,  after  an 
elaborate  review  of  the  decisions,  reaches  the  conclusion  that  those 
which  hold  the  contract  to  be  entire  announce  the  sounder  and  bet- 
ter rule.  Ostr.  Fire  Ins.  §  23  et  seq.  See,  also,  2  Joyce,  Ins.  §  1931 ; 
1  May,  Ins.  §  277. 

In  support  of  the  views  herein  announced,  we  find  the  courts  of 
last  resort  of  Maine,  Wisconsin,  Maryland,  Minnesota,  Virginia,  New 
Hampshire,  Massachusetts,  Vermont,  Pennsylvania,  New  Jersey, 
Michigan,  Indiana,  Arkansas,  Iowa,  Alabama,  and  Connecticut.  It 
would  not  be  profitable  here  to  do  more  than  cite  the  decisions  of 
these  courts.  Reduced  to  their  last  analysis,  they  simply  hold  that  the 
premium  being  for  a  gross  sum  evidences  an  intention  on  the  part 
of  the  parties  that  the  contract  should  be  treated  as  entire,  and  that 
the  intention  of  the  parties,  when  ascertained,  must  be  enforced.  See 
Richardson  v.  Insurance  Co.,  46  Me.  394,  74  Am.  Dec.  459;  Barnes 
V.  Insurance  Co.,  51  Me.  110,  81  Am.  Dec.  562;  Hinman  v.  Insur- 
ance Co.,  36  Wis.  159  (Syl.,  point  7);  Burr  v.  Insurance  Co.,  84  Wis. 
76,  54  N.  W.  22,  36  Am.  St.  Rep.  905 ;  Insurance  Co.  v.  Assum,  5 
Md.  165;  Bowman  v.  Insurance  Co.,  40  Md.  620;  Plath  v.  Insurance 
Co.,  23  Minn.  479,  23  Am.  Rep.  697;  Moore  v.  Insurance  Co.,  69 
Va.  508,  26  Am.  Rep.  373 ;  Baldwin  v.  Insurance  Co.,  60  N.  H.  422, 
49  Am.  Rep.  324;  Friesmuth  v.  Insurance  Co.,  10  Cush.  (Mass.)  587; 
Lee  V.  Insurance  Co.,  3  Gray  (Mass.)  583 ;  Kimball  v.  Insurance  Co., 
8  Gray  (Mass.)  33;  McGowan  v.  Insurance  Co.,  54  Vt.  211,  41  Am. 
Rep.  843;  Gottsman  v.  Insurance  Co.,  56  Pa.  210,  94  Am.  Dec.  55; 
Trustees  of  Fire  Ass'n  v.  Williamson,  26  Pa.  196;  Martin  v.  Insur- 
ance Co.,  57  N.  J.  Law,  623,  31  Atl.  213;  Insurance  Co.  v.  Resh, 
44  Mich  55,  6  N.  W.  114,  38  Am.  Rep.  228;  McQueeny  v.  Insur- 
ance Co.,  52  Ark.  257,  12  S.  W.  498,  5  L.  R.  A.  744,  20  Am.  St.  Rep. 
179;Garver  v.  Insurance  Co.,  69  Iowa.  202,  28  N.  W.  555;  Assur- 
ance Co.  V.  Stoddard,  88  Ala.  606,  7  South.  379  (Syl.,  point  5) ;  Es- 
sex Sav.  Bank  v.  Meriden  Fire  Ins.  Co.,  57  Conn.  335,  17  Atl.  930, 
18  Atl.  324,  4  L.  R.  A.  759. 


WHEN    THE    CONTRACT   IS    DIVISIBLE  39 

It  is  true  that  none  of  the  cases  above  cited  dealt  with  a  breach  of  the 
iron-safe  clause,  but  in  many  of  them  the  condition  in  the  policy 
which  was  violated  had  no  more  connection  with  the  property  for 
which  a  recovery  was  souj^ht  than  does  the  iron-safe  clause  to  the 
building  insured  by  the  policy  herein  involved.  In  principle  the  cases 
are  exactly  in  point.  Opposed  to  this  view  are  decisions  of  the  court 
of  last  resort  of  Nebraska,  Colorado,  Kansas,  and  Missouri.  See  In- 
surance Co.  V.  Schreck,  27  Neb.  527,  43  N.  W.  340,  6  L.  R.  A.  524, 
20  Am.  St.  Rep.  696;  Insurance  Co.  v.  Fairbank,  32  Neb.  750,  49 
N.  W.  711,  29  Am.  St.  Rep.  459;  Insurance  Co.  v.  Barker,  6  Colo. 
App.  535,  41  Pac.  513;  Insurance  Co.  v.  York,  48  Kan.  488,  29  Pac. 
586 ;  Insurance  Co.  v.  Saindon,  53  Kan.  623,  36  Pac.  983 ;  Loehner 
V.  Insurance  Co.,  17  Mo.  247;  Trabue  v.  Insurance  Co.,  121  Mo.  75, 
25  S.  W.  848,  23  h.  R.  A.  719,  42  Am.  St.  Rep.  523.  The  courts 
of  New  York  and  Indiana  seem  to  have  been  at  different  times  on 
both  sides  of  the  question  now  under  consideration.  Smith  v.  In- 
surance Co.,  25  Barb.  (N.  Y.)  497;  Kiernan  v.  Insurance  Co.,  81 
Hun,  373,  30  N.  Y.  Supp.  892;  Merrill  v.  Insurance  Co.,  73  N.  Y. 
452,  29  Am.  Rep.  184;  Pratt  v.  Insurance  Co.,  130  N.  Y.  206,  29 
N.  E.  117;  Havens  v.  Insurance  Co.,  Ill  Ind.  90,  12  N.  E.  137,  60 
Am.  Rep.  689;  Insurance  Co.  v.  Pickel,  119  Ind.  155,  21  N.  E.  546, 
12  Am.  St.  Rep.  393. 

Our  conclusion  is  that  where  an  insurance  policy  is  issued  in  con- 
sideration of  a  gross  premium,  and  provides  that  the  policy  shall  be 
void  in  the  event  of  a  breach  of  a  certain  condition  therein  named, 
and  this  condition  is  broken,  no  recovery  can  be  had  on  the  policy, 
though  separate  classes  of  property  are  therein  insured,  and  though 
the  stipulation  violated  relates  solely  to  a  matter  which  could  have 
connection  with  but  one  of  these  classes,  *  *  *  Judgment  re- 
versed. 


COLEMAN  v.  NEW  ORLEANS  INS.  CO. 

(Supreme  Court  of  Ohio.  1892.     49  Ohio  St.  310,  ?,1  N.  E.  279,  16  L.  R.  A. 

174,  34  Am.  St.  Rep.  565.) 

The  New  Orleans  Insurance  Company,  on  the  17th  day  of  Novem- 
ber, 1882,  issued  to  H.  Coleman  &  Co.  a  policy  of  fire  insurance, 
whereby  the  company  insured  Coleman  &  Co.  against  loss  or  damage 
by  fire  for  the  period  of  one  year  from  the  date  of  the  policy,  to  the 
amount  of  four  thousand  dollars,  as  follows :  "$200,  on  their  one- 
story  frame  shingle-roof  storehouse;  $3,800  on  the  general  stock  of 
merchandise,  consisting  principally  of  dry  goods,  groceries,  clothing, 
boots  and  shoes,  hats  and  caps,  queensware,  glassware,  cutlery,  and 
such  other  articles  as  are  usually  kept  for  sale  in  a  country  store ;  all 
contained  in  their  one-story  frame  shingle-roof  storehouse,  situated 
in  Pike  county,  Kentucky."    On  the  11th  day  of  April,  1883,  the  prop- 


40  THE    NATURE   AND    REQUISITES    OF   THE    CONTRACT 

erty  was  totally  destroyed  by  fire;  and  thereafter  proof  of  the  loss 
was  made  out  and  forwarded  to  the  company.  The  loss  not  having 
been  paid,  Coleman  &  Co.  commenced  an  action  against  the  insurance 
company  in  the  court  of  common  pleas  of  Scioto  county,  to  recover 
the  amount  of  the  policy;  the  loss  exceeding  that  sum.  From  a  judg- 
ment for  defendant,  plaintiffs  bring  error. 

Williams,  J.^^  The  policy  of  insurance  contains  the  provisions 
that,  "if  the  assured  is  not  the  sole  and  unconditional  owner  of  the 
property,  or  if  any  building  intended  to  be  insured  stands  on  ground 
not  owned  in  fee  simple  by  the  assured,"  the  policy  "shall  become 
void,  unless  consent  in  writing  by  the  company  be  indorsed  thereon." 
*  *  *  The  principal  ground  of  contention  is  that  the  contract  of 
insurance  evidenced  by  the  policy  is  so  far  severable  as  to  entitle  the 
plaintiffs  to  recover  for  the  loss  of  the  goods,  though  they  may  not 
be  entitled  to  recover  for  the  loss  of  the  building,  by  reason  of  the 
state  of  the  title  to  the  land  on  which  it  stood. 

Whether  such  a  contract  is  so  severable  is  a  question  upon  which 
the  adjudications  of  courts  of  the  highest  respectability  are  in  direct 
conflict.  The  following  are  some  of  the  cases  which  hold  the  con- 
tract to  be  entire:  Barnes  v.  Insurance  Co.,  51  Me.  110,  81  Am.  Dec. 
562;  Havens  v.  Insurance  Co.,  Ill  Ind.  90,  12  N.  E.  137,  60  Am.  Rep. 
689 ;  Cuthbertson  v.  Insurance  Co.,  96  N.  C.  480.  2  S.  E.  258 ;  Essex 
Sav.  Bank  v.  Meriden  Fire  Ins.  Co.,  57  Conn.  335,  17  Atl.  930,  and 
18  Atl.  324,  4  E.  R.  A.  759. 

On  the  other  hand,  such  contracts  are  held  severable  in  the  follow- 
ing, and  other  cases :  Insurance  Co.  v.  Spankneble,  52  111.  53,  4  Am. 
Rep.  582;  Insurance  Co.  v.  Walsh,  54  111.  164,  5  Am.  Rep.  115;  Loeli- 
ner  v.  Insurance  Co.,  17  Mo.  247;  Koontz  v.  Insurance  Co.,  42  Mo. 
126,  97  Am.  Dec.  325;  Insurance  Co.  v.  Lawrence,  4  Mete.  (Ky.)  9, 
81  Am.  Dec.  521 ;  Merrill  v.  Insurance  Co.,  72>  N.  Y.  452.  29  Am.  Rep. 
184;  Schuster  v.  Insurance  Co.,  102  N.  Y.  260,  6  N.  E.  406.  And  such 
we  understand  to  be  the  effect  of  the  decision  in  Clark  v.  Insurance 
Co.,  6  Cush.  (Mass.)  342,  53  Am.  Dec.  44.  There  the  policy,  for  a 
gross  premium,  insured  the  plaintiff's  "tavern  house,"  to  the  amount 
of  $2,200,  and  his  shop,  valued  at  $300.  The  act  of  incorporation 
of  the  defendant  provided  "that,  when  any  property  insured  by  this 
company  shall  in  any  way  be  alienated,  the  policy  shall  thereupon  be 
void,  and  should  be  surrendered  to  the  directors,  to  be  canceled."  The 
shop  was  alienated  by  the  assured,  and  the  "tavern  house"  was  after- 
wards destroyed  by  fire.  It  was  held  that  the  alienation  of  the  shop 
did  not  prevent  a  recovery  for  the  loss  of  the  tavern.  The  court  say : 
"The  next  ground  taken  by  the  defendants  is  that  the  shop,  which 
was  insured  in  the  same  policy,  had  been  alienated  by  the  plaintiff, 
and  that  this  is  such  an  alienation  as  will  avoid  the  policy.  But  the 
shop  was  valued  separately,  and  was  insured  separately,  as  a  separate, 

21  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


WHEN   THE   CONTRACT   IS    DIVISIBLE  41 

distinct,  independent  subject  of  insurance,  though  insured  in  the  same 
policy.  The  alienation  of  the  shop  would  no  doubt  avoid  the  policy 
pro  tanto,  and  only  pro  tanto.  The  tavern  house  and  the  shop  being- 
insured  separately,  the  alienation  of  one  would  no  more  affect  the  in- 
surance on  the  other  than  if  they  had  been  insured  in  separate  policies." 

In  the  case  of  Insurance  Co.  v.  Walsh,  cited  above,  two  houses  were 
embraced  in  the  same  policy,  and  insured  for  different  sums  for  a 
gross  premium  paid,  the  policy  providing  that,  if  the  insured  premises 
should  remain  vacant  for  a  certain  time  without  notice  to  the  com- 
pany, the  policy  should  become  void ;  and  it  was  held  that  the  fact 
that  one  of  the  buildings  remained  thus  vacant  without  notice  to  the 
insurer  would  not  invalidate  the  policy  as  to  the  other. 

The  action  in  Loehner  v.  Insurance  Co.,  17  Mo.  247,  was  upon  a  fire 
policy  covering  a  dwelling  house  and  furniture  therein.  It  was  held : 
"A  policy  may  be  void  in  part  and  valid  in  part,  if  the  subject-matter 
is  capable  of  being  separated ;  and,  although  a  failure  to  disclose  an 
incumbrance  would  avoid  the  policy  as  to  the  house  insured,  it  would 
not  avoid  it  as  to  furniture  insured  in  the  same  policy,  but  separately 
appraised,  unless  the  fact  concealed  was  material  to  the  risk." 

Koontz  V.  Insurance  Co.,  42  Mo.  126.  97  Am.  Dec.  325,  was  a  case 
where  a  policy  of  insurance  upon  a  certain  livery  stable  was  made  to 
cover  both  personal  and  real  property,  and  the  application  of  the  as- 
sured contained  a  false  warranty  touching  incumbrances  upon  the  real 
estate ;  and  where  it  further  appeared  that  the  personal  property  was 
separately  appraised,  and  nothing  showed  that  the  representations  as 
to  the  incumbrances  upon  the  stable  formed  any  inducement  to  the 
execution  of  the  policy  covering  the  personal  property.  The  court  held 
that  the  assured  might  recover  the  value  of  the  latter,  although  the 
policy  was  rendered  void  as  to  the  real  estate  by  reason  of  such  false 
warranty. 

The  case  of  Insurance  Co.  v.  Lawrence,  4  Mete.  (Ky.)  9,  81  Am. 
Dec.  521,  is  much  like  the  one  before  us.  There,  the  appellant,  (com- 
pany,) for  a  premium  of  $14,  insured  J.  B.  Lawrence  &  Co.  against 
loss  by  fire  from  the  25th  of  May,  1858,  to  the  25th  of  May,  1859,  "to 
the  amount  of  $200  on  their  frame  storehouse,  situated  on  the  Ohio 
river,  in  Gallatin  county,  Kentucky,  known  as  'Jackson's  Landing,'  and 
$1,200  on  the  stock  of  goods  in  said  storehouse."  The  premises  and 
goods  were  destroyed  by  fire  on  the  5th  of  April  1859,  and  suit  was 
brought  on  the  policy  for  the  value  of  the  goods,  but  not  for  the  loss 
of  the  building.  One  defense  was  that  Lawrence  &  Co.,  when  they 
obtained  the  insurance,  represented  themselves  to  be  the  owners  of 
the  house,  when  in  fact  they  were  not,  which,  by  the  terms  of  the 
policy,  rendered  it  void.  But  the  court  held,  "in  the  absence  of  proof 
that  the  plaintiffs  procured  the  insurance  upon  the  house  for  a  fraudu- 
lent purpose,  or  that  their  supposed  interest  in  the  house  induced  the 
defendant  to  insure  the  goods,  that  this  does  not  vitiate  the  insurance 
on  the  goods;"   and  the  plaintiffs  had  judgment. 


42  THE    NATURE   AND   REQUISITES   OF   THE   CONTRACT 

In  the  case  of  Merrill  v.  Insurance  Co.,  73  N.  Y.  452,  29  Am.  Rep. 
184,  the  policy,  for  one  premium,  insured  the  plaintiff  against  loss  or 
damage  by  fire  to  the  amount  of  $6,000,  as  follows:  "$1,000  on  dwell- 
ing house  and  wood  house,  if  attached ;  $300  on  household  furniture 
therein;  $200  on  provisions,  etc.,  therein,"  and  various  other  items 
of  property  described  in  the  policy,  each  having  a  sepecific  valuation 
therein  set  forth.  The  policy  contained  a  condition  that,  if  the  prop- 
erty insured  was  incumbered  by  mortgage  or  otherwise,  unless  so  rep- 
resented in  the  application,  the  policy  should  be  void ;  also,  that  if  it 
should  become  incumbered  by  mortgage,  judgment,  or  otherwise,  policy 
should  be  void  until  the  written  consent  of  the  company  was  obtained. 
The  real  estate  was  incumbered,  and  that  fact  was  set  up  in  defense  of 
the  action  on  the  policy ;  and  it  was  claimed  by  the  defendant  that  it 
not  only  avoided  the  policy  as  to  the  building  insured,  but  also  as  to  the 
chattel  property ;  and  whether  it  did  or  not  it  was  conceded  depended 
upon  whether  the  contract  was  entire  or  severable.  In  a  well-consid- 
ered opinion  Judge  Folger,  after  commenting  upon  various  decisions 
on  the  subject,  discusses  the  question  on  principle,  and  in  the  course 
of  the  discussion  says : 

"It  is  plain  from  the  fact  of  a  separate  valuation  having  been  put 
by  the  parties  upon  the  different  subjects  of  the  insurance  that  they 
looked  upon  them  as  distinct  matters  of  contract.    The  eft'ect  of  a  sep- 
arate valuation  was  to  make  them  so.     No  matter  how  much  value 
there  might  have  been  in  any  one  of  those  subjects,  even  to  the  whole 
amount  of  the  policy,  had  it  been  totally  destroyed,  the  defendants 
could  not  have  been  made  liable  to  an  amount  greater  than  that  named 
in  the  poHcy  as  the  valuation  of  it.     Thus  it  was,  at  the  inception  of 
the  contract,  distinguished  from  the  other  subjects  of  insurance,  and 
the  contracts  so  made  as  to  be  capable  of  application  to  it  alone.     So, 
too,  if  but  one  of  the  subjects  of  insurance  had  been  burned,  the  de- 
fendants   (ceteris  paribus)    could  not  have  avoided  liability  to   pay 
for  that  up  to  the  value  put  upon  it ;   and,  if  not  wholly  destroyed,  but 
so  far  damaged  as  to  reach  in  deterioration  the  value  put  upon  it  in  the 
policy,  the  defendants  would  have  to  pay  that  damage ;    and  that  sub- 
ject would  no  longer  form  a  part  of  the  general  matter  insured),  and 
hence  not  a  part  of  the  continuing  contract.     Thus  there  would  of 
necessity  be  a  severance  of  the  contract  worked  out  by  the  operation 
of  its  own  terms.    Again,  the  principle,  in  the  case  of  a  contract  about 
several  things,  but  with  a  single  consideration  in  gross,  is  this :    that 
we  are  not  able  to  say  that  the  party  would  have  agreed  for  one,  or 
for  more  than  one,  yet  less  than  all  of  them,  without  he  could  at  the 
same  time  acquire  a  right  to  have  them  all.    But  our  daily  experience 
and  observation  shows  that  an  insurance  company  is  as  ready  to  in- 
sure buildings  without  insuring  the  contents,  and  the  contents  without 
insuring  the  buildings,  as  to  insure  them  together;    so  that  the  prin- 
ciple does  not  press  so  hard  in  considering  such  a  contract  as  that  be- 
fore us.     Besides,  it  is  the  rule  that  an  agreement  embracing  several 


WHEN   THE    CONTRACT   IS   DIVISIBLE  43 

particulars,  though  made  at  one  time,  and  about  one  affair,  may  yet 
have  the  nature  and  operation  of  several  different  contracts;  as,  when 
they  admit  of  being-  separately  executed  and  closed,  as  we  have  in- 
stanced just  above,  where  the  contract  may  be  taken  distributively, 
each  subject  being  considered  as  forming  the  matter  of  a  separate 
agreement  after  it  is  so  closed.  Per  Washington,  J.,  Perkins  v.  Hart, 
11  Wheat.  237-251  (6  L.  Ed.  463),  Rodemer  v.  Hazlehurst,  9  Gill 
(Md.)  294.  In  our  judgment,  this  rule  applies  fitly  to  the  contract 
in  hand.  It  admits  of  being  separately  executed  and  closed  as  to 
each  of  the  separate  subjects  of  insurance.  When  one  species  of  the 
property  insured  is  burned,  a  contract  to  insure  as  to  that  may  be 
performed  as  to  that  alone.  The  insured  has  paid  the  premium.  A 
lire  doing  damage  to  that  subject,  the  damage  may  be  paid  for  by 
the  insurer,  and  that  subject  be  thus  put  out  of  the  contract,  while 
it  remains  in  fieri  as  to  all  the  other  subjects  named  in  it.  When 
there  are  several  subjects  of  insurance  (as  there  are  fourteen  here) 
separately  valued,  on  which  a  gross  sum  is  insured  not  exceeding 
the  aggregate  of  that  valuation,  for  the  insurance  of  which  a  premium 
in  gross  is  paid,  it  is  easy  to  see  what  is  the  rate  of  premium  on 
the  whole  valuation,  and  what  is  the  amount  of  premium  on  each 
subject  insured.  This  being  so,  it  seems  fanciful  to  say  that,  if  the 
facts  thus  easily  reached  were  stated  in  detail  in  the  contract,  it 
would  be  severable,  while,  not  being  specifically  spread  out,  it  is 
entire.  If  there  were  anything  in  the  terms  or  nature  of  the  particular 
contract,  or  in  the  circumstances  of  the  case,  or  in  the  nature  of  the 
different  subjects  of  the  insurance,  from  which  it  was  to  be  inferred 
that  the  insurer  would  not  have  been  likely  to  have  assumed  the 
risk  on  one  of  several  of  them,  unless  induced  by  the  advantage  and 
profit  of  having  a  risk  on  all,  that  would  be  a  rational  cause  for 
deeming  the  contract  entire.  But  when,  for  aught  that  appears,  it 
is  indeed  as  likely  that  the  insurer  would  have  taken  a  risk  upon 
any  one  or  any  few  of  the  subjects  insured,  at  the  sanie  rate  of 
premium  as  upon  the  whole,  and  has  in  the  policy  so  separated  the 
subjects,  and  so  singled  them  out  by  a  specific  valuation,  as  that 
there  is  no  difficulty  in  distinguishing  the  subject  from  the  rest,  and 
closing  the  contract  as  to  that  separately,  and  carrying  forward  the 
contract  as  to  the  rest,  it  does  result  that  the  contract  is  separable 
in  practical  operation,  and  hence,  in  law.  And  so,  also,  that,  though 
there  may  have  been  some  conduct  of  the  insured  as  to  some  of  the 
property,  not  evil  in  itself,  but  working  a  breach  of  a  condition  in 
its  letter,  the  effect  of  that  breach  may  be  confined  to  the  insurance 
upon  that  property,  the  contract  as  to  that  be  held  avoided,  and  as 
to  the  other  subjects  be  held  valid." 

Forfeitures  do  not  readily  find  favor  in  the  law,  and  courts  are 
reluctant  to  declare  and  enforce  them,  if  by  reasonable  interpretation 
it  can  be  avoided.  It  is  not  likely  that  in  this  case  the  small  amount 
of  insurance  on  the  storehouse  constituted  anv  inducement  for  the 


44  THE    NATURE   AND   REQUISITES   OF   THE    CONTRACT 

insurance  placed  upon  the  stock  of  goods ;  and  it  does  not  appear 
that  the  rates  upon  these  classes  of  property  were  different,  nor  how 
it  could  make  any  difference  if  they  were,  since  the  only  effect,  in 
this  respect,  of  holding  the  contract  severable,  is  that  the  insurance 
company  is  enabled  to  retain  the  whole  of  the  premium,  which  it  ac- 
cepted as  the  consideration  for  the  insurance  of  all  of  the  property, 
for  the  lesser  risk  on  part  of  the  property  only;  and  it  is  not  to  be 
presumed  that  the  premium  for  the  insurance  of  part  only  of  the 
property  would  exceed  that  accepted  for  the  risk  on  all  of  it.  It  was 
not  shown  at  the  trial  that  the  plaintiffs  were  guilty  of  any  misrepre- 
sentation or  intentional  concealment  concerning  the  title  to  the  land 
on  which  the  storehouse  stood.  No  inquiry  was  made  of  them  about 
it.  The  subject  was  not  a  matter  of  negotiation  between  the  parties 
in  effecting  the  insurance,  and  the  plaintiffs  were  ignorant  of  the 
condition,  for  the  breach  of  which  the  company  claims  the  right  to 
forfeit  the  whole  policy.  If  the  position  taken  by  the  company  be 
correct,  the  condition  was  broken  when  the  policy  issued,  and  there 
was,  therefore,  no  consideration  for  the  premium  that  was  paid,  for 
no  risk  attached;  and  yet  the  company,  while  asserting  the  invalidity 
of  the  contract,  holds  onto  its  fruits.  This  is  not  a  very  consistent 
position,  nor  a  very  just  one.  A  just  result  is  reached,  and,  as  we 
think,  the  lawful  one,  by  holding,  as  we  do,  that  the  contract  of  in- 
surance in  this  case  is  severable,  and  the  breach  of  the  condition  as 
to  the  title  of  the  land  does  not  defeat  the  plaintiff''s  right  to  recover 
for  the  loss  of  the  stock  of  goods  insured  by  the  policy  in  suit.  It 
follows  that,  in  our  view  of  the  case,  the  court  erred  in  the  instructions 
we  have  referred  to,  for  which  error  the  judgment  is  reversed. 


TRABUE  V.  DWELLING  HOUSE  INS.  CO. 

(Supreme  Court  of  Missouri,  1894.     121  Mo.  75,  25  S.  W.  848,  23  L.  R.  A. 

719,  42   Am.    St.   Rep.  523.) 

Gantt,  p.  J."  *  *  *  flig  defendant  company,  by  the  policy  of 
insurance  on  which  this  suit  is  based,  insured  Anthony  E.  Trabue 
against  loss  by  fire  or  lightning  for  a"  term  of  five  years,  beginning  at 
noon  on  the  20th  day  of  April,  1888,  in  the  sum  of  $800,  on  the  dwell- 
ing house  occupied  at  the  time  by  said  Trabue,  and  the  sum  of  $250 
on  the  contents  of  said  dwelling  house,  and  also  $200  on  other  prop- 
erty which  escaped  the  fire.  The  insured  was  the  owner  of  the  in- 
sured property.  On  the  1st  day  of  February,  1889,  said  insured  died 
at  his  place  of  residence.  *  *  *  f  j^g  insured  left  a  will,  by  which 
he  devised  to  his  wife,  Christiana  Trabue,  one-third  of  his  estate  dur- 
ing her  widowhood,  and  the  residue  and  remainder  he  devised  to  his 

22  Part  of  the  opinion  is  omitted. 


WHEN    THE    CONTRACT   IS    DIVISIBLB  45 

lour  children,  his  only  descendants,  plaintiffs  herein,  in  equal  parts. 
*  *  *  The  property  was  destroyed  by  fire  October  16,  1890.  At 
the  time  of  the  loss  the  plaintiff  Christiana  Trabue  was  occupying  the 
house  as  a  dwelling  house.  Three  of  her  children — the  plaintiffs  Tay- 
lor J.  Trabue,  Kitty  R.  Trabue,  and  INIary  G.  Trabue— were  living 
with  her  as  a  part  of  her  family. 

Prior  to  said  loss  the  plaintiffs,  in  an  ex  parte  proceeding  in  the 
Ralls  circuit  court,  had  the  real  estate  devised  to  them  by  said  Trabue 
partitioned  among  them,  and  that  portion  on  which  said  dwelling  house 
stood,  including  said  house,  was  set  oft'  to  said  Christiana  Trabue  dur- 
ing her  natural  life  or  widowhood.  Notice  and  proof  of  loss  were 
given,  and  the  property  was  worth  the  amount  claimed.  The  per- 
sonal property  insured  was  in  said  house  in  the  possession  of  Chris- 
tiana Trabue  at  the  time  of  the  loss.  *  *  *  The  policy  contained 
this  clause:  "This  entire  policy  shall  be  void  if  any  change  (other 
than  by  death  of  the  insured)  takes  place  in  the  interest,  title,  or  pos- 
session of  the  subject  of  insurance,  whether  by  legal  possession  or 
judgment  or  by  voluntary  act  of  the  insured  or  otherwise." 

The  circuit  court  gave  judgment  for  plaintiffs  for  the  whole  amount 
of  the  policy,  and  defendant  appealed  to  the  St.  Louis  court  of  ap- 
peals, where  the  judgment  was  reversed  without  remanding,  but,  the 
decision  being  in  conflict  with  the  decision  of  the  Kansas  City  court 
of  appeals  in  Crook  v.  Insurance  Co.,  38  j\Io.  App.  582,  the  cause  was 
certified  to  this  court  under  the  mandate  of  section  6  of  the  constitu- 
tional amendment  of   1884. 

The  St.  Louis  court  of  appeals  held  the  policy  was  avoided  as  to 
the  dwelling  house  by  the  transfer  of  the  title  thereto  by  the  partition 
proceedings  and  judgment  therein  between  the  devisees  of  Anthony 
E.  Trabue,  the  loss  having  occurred  after  that  decree.     *     *     * 

As  this  judgment,  on  its  face,  only  affected  the  real  estate  covered 
by  said  policy,  the  plaintiffs  insist  they  are  entitled  to  recover  the  in- 
surance on  the  personal  property,  as  to  which  there  was  no  breach 
of  any  condition  in  the  policy;  but  the  defendant  insists  that  by  the 
use  of  the  terms  "entire  policy"  in  said  clause  the  whole  policy  is 
avoided  for  a  breach  in  any  respect.  If  defendant's  contention  be 
correct,  it  is  a  most  appropriate  subject  for  legislative  correction  at 
the  earliest  opportunity.  But  is  this  clause  properly  construed  by  the 
court  of  appeals? 

As  early  as  the  case  of  Loehner  v.  Insurance  Co.,  17  Mo.  247,  it 
was  held  by  this  court  that  where  a  firm  obtained  insurance  upon  a 
storehouse  and  a  stock  of  goods  therein  in  separate  amounts,  and  the 
insurance  on  the  house  was  avoided  because  the  interest  in  the  house 
was  incorrectly  described  in  the  application,  the  policy  was  not  vitiated 
as  to  the  goods ;  in  other  words,  this  court  then  held  that  such  a  con- 
tract was  divisible.  Afterwards,  in  Koontz  v.  Insurance  Co.,  42  Mo. 
126,  97  Am.  Dec.  325,  the  action  was  on  a  policy  by  defendant  on 
a  livery  stable,  the  live  stock,  and  personal  property,  each  separately 


46  THE    NATURE   AND   REQUISITES    OF   THE   CONTRACT 

Stated  and  appraised.  In  that  case  Judge  Wagner  reviewed  the  cases, 
and  admitted  there  was  a  conflict  between  the  decisions,  but  held  that 
Loehner  v.  Insurance  Co.,  17  ^lo.  247.  was  a  binding  authority,  and 
"cheerfully  followed  it,  because  this  court  regarded  it  as  in  consonance 
with  justice."  These  two  cases  have  never  been  overruled,  or  their 
authority  questioned,  until  the  decision  of  Insurance  Co.  v.  Barnett, 
1Z  Mo.  364,  39  Am.  Rep.  517. 

The  very  able  and  learned  judge  of  the  St.  Louis  court  of  appeals 
who  prepared  the  opinion  in  Hollo  way  v.  Insurance  Co.,  48  Wo.  App. 
1,  considered  Insurance  Co.  v.  Barnett  as  the  controlling  decision,  and 
followed  it,  as  recjuired  by  the  constitution  of  his  court;  and  in  this 
case  Thompson,  J.,  treated  the  point  as  decided  by  the  HoUoway  Case, 
and  as  clear  of  all  difficulty.  Since  then  the  Kansas  City  court  of 
appeals,  in  Shoup  v.  Insurance  Co.,  51  Mo.  App.  286,  has  followed 
Judge  Rombauer's  decision  in  the  Holloway  Case ;  so  that  it  becomes 
very  important  to  determine  the  effect  of  the  Barnett  Case. 

An  examination  of  that  case  will  show  that  the  remarks  of  the 
learned  judge  who  delivered  that  opinion  were  entirely  "obiter  dicta" 
as  to  this  question  of  the  divisibility  of  the  contract.  He  says,  "if 
such  a  stipulation  was  in  fact  in  the  policy,"  the  plaintiff  would  be  en- 
titled to  the  full  relief  prayed;  so  that  it  is  clear  no  such  clause 
was  before  the  court;  and,  while  his  opinion  is  entitled  to  respect 
on  the  supposed  case,  it  is  equally  clear  that  the  court  did  not  over- 
rule the  decision  in  Loehner's  Case  or  Koontz's  Case,  but,  on  the 
contrary,  on  the  only  point  that  was  in  fact  before  the  court,  those 
cases  were  treated  as  binding  authority.  Our  conclusion  is  that  so 
much  of  Judge  Norton's  opinion  as  referred  to  the  entirety  of  the 
policy  in  the  Barnett  Case  was  obiter,  and  did  not  overrule  the 
Koontz   and  Loehner   Cases. 

But,  independent  of  the  binding  authority  of  those  cases,  we  think 
they  were  correctly  decided.  In  both  of  those  cases  "the  policy" 
was  to  be  void  upon  certain  conditions.  Here  it  is  said  "the  entire 
policy"  shall  be  avoided.  "The  policy"  includes  all  and  every  part 
of  it,  and  the  insertion  of  the  word  "entire"  cannot  add  anything 
more  to  it,  so  that  this  mere  verbal  addition  has  not,  in  our  opinion, 
changed  the  law  of  the  case.  The  cases  cited  by  Judge  Norton  from 
Pennsylvania,  Maine,  Maryland,  and  other  states  are  based  upon  the 
case  of  Friesmuth  v.  Insurance  Co.,  10  Cush.  (Mass.)  587.  By  the 
laws  of  Massachusetts  the  policy  in  that  case  was  a  lien  on  the  in- 
terest of  the  assured  in  both  the  building  and  personal  property  in- 
sured. In  holding  that  such  a  policy  was  an  indivisible  contract, 
Judge  Bigelow  put  it  upon  the  ground  "that  the  consideration  was 
regarded  as  an  entirety,  for  which  the  deposit  note  was  given,  and 
the  liability  of  the  assured  to  assessments  on  that  amount  in  case 
of  losses."  He  said:  "They  [the  company]  had  a  right  to  look  to 
their  lien  on  each  and  all  of  different  kinds  of  property  insured  by 
them   for  the  security  of  the  whole  amount  of  the  note;"    and   so 


WHEN   THE    CONTRACT   IS    DIVISIBLE  47 

that  policy  said  on  its  face.  Upon  the  facts  of  that  case  no  ques- 
tion can  be  made  of  its  correctness.  The  lien  was  given  on  all  the 
property.  A  false  representation  afifected  all  of  the  lien.  On  the 
same  principle  stand  the  subsequent  cases  of  Brown  v.  Insurance  Co., 
11  Cush.  (Mass.)  281;  Gould  v.  Insurance  Co.,  47  Me.  403,  74  Am. 
Dec.  494.  In  Gottsman  v.  Insurance  Co.,  56  Pa.  210,  94  Am.  Dec.  55, 
Judge  Thompson  cites  the  Friesmuth  Case,  and  those  based  on  that 
case,  without,  however,  adverting  to  the  statutory  lien. 

That  other  courts  have  adopted  this  construction  of  the  entirety 
of  the  contract  is  not  questioned,  but,  entertaining  for  them,  as  we 
do,  all  due  respect,  we  see  no  reason  for  departing  from  our  own  de- 
cisions when  they  are  based  upon  what  appears  to  us  the  soundest 
reason.  When  one  applies  for  distinct  and  separate  insurance,  a  part 
on  real  estate,  a  part  on  personal  property,  he  can  require  two  separate 
policies.  The  accidental  circumstance  that  for  convenience  merely 
they  are  included  in  one  policy  does  not  merge  them  into  one.  If 
the  goods  alone  were  destroyed,  the  terms  of  the  policy  applying  to 
them  alone  could  be  made  the  basis  of  recovery.  The  supposed 
danger  of  making  a  contract  for  the  parties  is  not  in  the  case.  The 
question  is  whether,  according  to  legal  principles,  the  contract  made 
is  severable  or  entire.  There  is  nothing  to  indicate  the  company 
would  not  have  assumed  the  risk  on  the  house  without  taking  one 
also  on  the  goods,  nor  vice  versa.  The  contract  as  to  each  admitted 
of  being  separately  executed  as  to  the  separate  subjects  of  insurance. 
The  application  is  for  separate  insurance,  and  it  is  kept  distinct  in 
the  policy. 

Nor  are  the  Cases  of  Koontz  and  Loehner,  supra,  unsupported  by 
authorities  in  other  states.  In  Insurance  Co.  v.  Lawrence,  4  Mete. 
(Ky.)  9,  81  Am.  Dec.  521,  the  supreme  court  of  Kentucky  held  that 
when  insurance  was  obtained  upon  a  storehouse  and  stock  of  goods, 
in  an  action  for  loss  on  the  goods  the  fact  that  the  insurance  on  the 
house  was  void  because  the  interest  on  the  insured  was  incorrectly 
stated  did  not  vitiate  the  policy  on  the  goods,  but  it  would  be  treated 
as  a  separate  policy;  citing  Loehner  v.  Insurance  Co.,  17  Mo.  247, 
with  approval.  In  Clark  v.  Insurance  Co.,  6  Cush.  (Mass.)  342,  53 
Am.  Dec.  44,  a  policy  made  separate  insurance  on  two  buildings,  with 
a  clause  declaring  it  void  if  the  insured  should  alienate  the  property. 
It  was  held  that  alienation  of  one  building  did  not  avoid  it  as  to  the 
other.  In  Merrill  v.  Insurance  Co.,  7Z  N.  Y.  452,  29  Am.  Rep.  184, 
the  policy  was  upon  several  separate  and  distinct  classes  and  species 
of  property,  each,  as  in  the  case  at  bar,  separately  valued ;  the  sum 
total  of  the  valuation  was  insured  for  a  premium  in  gross ;  the  con- 
tract was  held  severable.  Judge  Folger  reviewed  all  the  cases,  in- 
cluding the  two  cases  of  Loehner  and  Koontz,  supra,  decided  by  this 
court,  and  in  a  most  satisfactory  manner  sustained  the  reasoning  of 
those  cases  upon  the  analogies  of  the  law  and  the  proper  construction 
of  the  contract.    Johnson  v.  Johnson,  3  Bos.  &  P.  162;    Mayfield  v. 


48  THE    NATURE    AND    REQUISITES   OF   THE    CONTRACT 

Wadsley,  3  Barn.  &  C.  327;  Goring  v.  Insurance  Co.,  10  Ont.  236; 
Insurance  Co.  v.  Walsh,  54  111.  164,  5  Am.  Rep.  115;  Date  v.  In- 
surance Co.,  14  U.  C.  C.  P.  548;  Deidericks  v.  Insurance  Co.,  10 
Johns.  (N.  Y.)  234;  Trench  v.  Insurance  Co.,  7  Hill  (N.  Y.)  122; 
Phillips  V.  Insurance  Co.,  46  U.  C.  Q.  B.  334;  Heacock  v.  Insurance 
Co.  (unreported),  referred  to  in  Merrill  v.  Insurance  Co.,  73  N.  Y. 
462,  29  Am.  Rep.  184;  Moore  v.  Insurance  Co.,  69  Va.  508,  26  Am. 
Rep.  373. 

The  Merrill  Case  came  under  review  in  1886  in  Schuster  v.  In- 
surance Co.,  102  N.  Y.  260,  6  N.  E.  406,  and  was  unanimously  sus- 
tained. In  1891,  in  Pratt  v.  Insurance  Co.,  130  N.  Y.  206,  29  N. 
E.  117,  the  question  again  recurring,  the  court  of  appeals  says: 
"Whatever  may  be  the  rule  elsewhere,  it  is  settled  in  this  state  that 
where  insurance  is  made  on  different  kinds  of  property,  each  sep- 
arately valued,  the  contract  is  severable,  even  if  but  one  premium  is 
paid,  and  the  amount  insured-  is  the  sum  total  of  the  valuations." 
See,  also.  Smith  v.  Insurance  Co.,  47  Hun  (N.  Y.)  30;  Woodward 
V.  Insurance  Co..  32  Hun  (N.  Y.)  365;  Insurance  Co.  v.  Fairbank, 
32  Neb.  750,  49  N.  W.  711,  29  Am.  St.  Rep.  459. 

In  the  very  recent  case  of  Coleman  v.  Insurance  Co.,  49  Ohio  St. 
310,  31  N.  E.  279,  16  L.  R.  A.  174,  34  Am.  St.  Rep.  565,  the  supreme 
court  of  Ohio  aligns  itself  in  this  conflict  of  authority  on  the  side  taken 
by  this  court  in  Loehner  v.  Insurance  Co.,  17  Mo.  247,  and  Koontz  v. 
Insurance  Co.,  42  Mo.  126,  97  Am.  Dec.  325,  holding  such  contracts  as 
this  severable.  Vide,  also,  Rogers  v.  Insurance  Co.,  121  Ind.  570, 
23  N.  E.  498;  Insurance  Co.  v.  Spankneble,  52  111.  53,  4  Am.  Rep. 
582;  Quarrier  v.  Insurance  Co.,  10  W.  Va.  530,  27  Am.  Rep.  582; 
Insurance  Co.  v.  Schreck,  27  Neb.  527,  43  N.  W.  340,  6  L.  R.  A.  524, 
20  Am.  St.  Rep.  696. 

When  this  contract  was  made,  then,  it  was  the  settled  rule  of 
decision  in  this  state  that  such  a  contract  as  this  was  divisible  or 
severable,  although  the  policy  had  a  clause  which  would  avoid  the 
whole  contract.  The  addition  of  the  word  "entire,"  given  its  utmost 
latitude,  could  not  avoid  any  more  than  the  whole  policy;  hence  it 
added  nothing  to  the  policy.  Forfeitures  are  not  favored  in  the  law, 
and  will  not  be  enforced  if  any  reasonable  interpretation  can  be  made 
which  will  prevent  one.  No  reason  is  given  here  why  a  forfeiture 
should  be  enforced,  except  the  insertion  of  the  word  "entire"  into 
the  policy.  The  risk  was  not  increased.  The  premiums  were  taken, 
kept,  and  enjoyed  for  insurance  on  the  personal  property.  The  policy 
as  to  the  house  was  avoided,  doubtless,  through  the  ignorance  of  the 
insured ;  but  they  have  violated  no  condition  as  to  this  personal  prop- 
erty. Holding,  then,  as  we  do,  that  this  was  a  divisible  contract,  it 
results  that  the  legal  effect  is  the  same  as  if  two  distinct  and  separate 
policies  were  issued,  and,  so  reading  the  contract,  we  do  not  reject 
the  word  "entire"  at  all,  but  apply  it  to  that  policy,  or  portion  of 
this  policy,  which  the   insured  has   forfeited  by  the  change  of  title 


WHEN    THE    CONTRACT   IS   DIVISIBLK  49 

to  which  alone  this  clause  refers;  and  it  avoids  that  "entire"  policy, 
and  not  the  policy  in  which  no  condition  or  warranty  has  been  broken. 
This  construction  logically  follows  from  the  divisibility  of  the  con- 
tract, and  best  accords  with  fair  dealing  and  the  presumed  intention 
of  the  parties. 

Our  conclusion  is  that  neither  the  law  nor  common  honesty  will 
permit  the  defendant  to  avoid  paying  the  loss  as  to  this  personal 
property.  The  judgment  of  the  St.  Louis  court  of  appeals  is  af- 
firmed in  so  far  as  it  adjudged  the  policy  on  the  dwelling  house 
avoided,  and  reversed  in  so  far  as  it  avoids  the  insurance  on  the  per- 
sonal property,  and  the  cause  is  remanded  to  that  court  with  directions 
to  affirm  the  judgment  of  the  circuit  court  to  the  amount  of  $250, 
the  amount  of  insurance  on  personal  property  and  piano,  and  reverse 
it  as  to  the  remainder  of  said  judgment.  The  costs  of  the  appeal  to 
this  court  are  adjudged  to  plaintiffs,  and  the  costs  of  the  appeal  to 
the  St.  Louis  court  of  appeals  are  adjudged  to  defendant,  as  also 
the  costs  in  the  circuit  court,  after  the  offer  of  judgment  was  made; 
the  other  costs  to  plaintiffs.    All  concur. 


TAYLOR  v.  ANCHOR  MUT.  FIRE  INS.  CO. 

(Supreme  Court  of  Iowa,  1902.     116  Iowa,  625,  88  N.  W.  807,  57  L.  R.  A. 

328,  93  Am.   St.   Rep.   261.) 

Action  to  recover  for  a  loss  within  the  terms  of  a  policy  of  fire 
insurance.  There  was  a  judgment  on  a  verdict  for  plaintiff,  from 
which  defendant  appeals. 

McClain,  J.^^  The  application  on  which  the  policy  was  issued 
represented  that  insured  owned  93  acres  of  land,  "on  which  the  prop- 
erty to  be  insured  is  located,"  of  the  value  of  $35  per  acre;  that 
there  was  $900  incumbrance  thereon;  that  he  had  a  fee-simple  title 
to  the  land  "on  which  the  above-described  property  to  be  insured  is 
situated" ;  and  that  his  title  was  undisputed  to  the  property  proposed 
for  insurance ;  and  these  representations  were,  in  the  policy,  war- 
ranted to  be  correct.  The  policy  specifies  the  risk  assumed  as  fol- 
lows :  "$250  on  frame  dwelling  house ;  $250  on  household  furniture, 
beds,  and  bedding  while  therein;  $50  on  family  wearing  apparel 
therein;  $25  on  sewing  machines  while  therein;  $50  on  silver  and 
plated  ware  while  therein,  and  family  jewelry,  books,  pictures,  picture 
frames;  $100  on  work  horses,  mules,  and  colts  on  premises,  and 
against  loss  by  lightning,  at  large  or  in  use,  not  to  exceed  $75  on 
each;  $100  on  cattle  on  premises;  $100  on  grain  in  building;  $25 
on  wagons,  carriages,  and  harness."  It  is  provided  in  the  policy 
not  only  that  it  shall  be  void  in  case  of  false  representations  in  the 

23  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 
CooLET  Ins. — 4 


50       THE  NATURE  AND  REQUISITES  OF  THE  CONTRACT 

application,  or  in  case  of  change  in  title  or  possession,  but  also  that 
it  shall  be  void  after  any  sale,  conveyance,  or  incumbrance  of  the 
property  insured,  without  the  consent  of  the  company.     *     *     =^ 

Subsequently  to  the  issuance  of  the  policy  the  insured  gave  a 
chattel  mortgage  on  some  of  the  cows  and  horses  covered  by  the 
policy,  and  this  is  relied  on  by  defendant  as  a  breach  of  condition, 
avoiding  the  entire  policy,  and  therefore  preventing  recovery  for  the 
loss,  which  was  of  the  dwelling  house  and  furniture  therein.  We 
may  concede  that  the  giving  of  the  chattel  mortgage  was  a  breach  of 
the  condition  of  the  policy  as  to  the  property  covered  by  the  mort- 
gage, and  we  are  therefore  at  once  confronted  with  the  question 
whether  a  breach  of  condition  as  to  a  part  of  the  property  covered 
by  the  policy  will  avoid  the  policy  as  to  other  property  enumerated, 
and  covered  by  a  separate  stipulation  thereof,  as  to  the  amount  of 
the  risk  assumed  on  such  piK^perty.  It  will  be  seen  at  once  that  if 
the  house  and  furniture  had  been  included  in  one  policy,  and  the 
animals  in  another,  a  breach  of  the  condition  of  the  policy  covering 
the  animals  would  not  prevent  recovery  under  the  policy  covering 
the  dwelling  house  and  furniture;  but  it  is  contended  that,  where 
an  insurance  on  different  classes  of  property  is  effected  by  a  policy 
which  states  a  gross  premium,  the  contract  is  entire,  although  the 
risks  assumed  on  the  different  classes  of  property  are  distinct  and 
separate. 

On  this  question  the  authorities  are  in  hopeless  confusion,  and 
there  are  cases  holding,  without  qualification,  to  the  rule  that  the 
entirety  of  the  premium  is  conclusive  as  to  the  entirety  of  the  con- 
tract, so  that  a  breach  of  condition  as  to  one  class  of  property  will 
avoid  the  policy  as  to  all,  notwithstanding  the  two  classes  are  in- 
cluded in  separate  clauses,  as  to  the  amount  of  loss  to  be  paid.  On 
the  other  hand,  there  are  cases  in  which  it  is  held  that  if  the  risks 
are  separately  enumerated  the  policy  is  divisible,  notwithstanding  the 
entirety  of  the  premium.  We  think,  however,  the  great  weight  of 
authority  at  the  present  time  is  to  the  effect  that  the  question  is  one 
of  the  intention  of  the  parties,  and  that,  if  the  condition  of  the 
property  is  such  that  the  risk  as  to  one  class  of  property  would  be 
affected  by  the  destruction  of  the  other,  then  it  must  be  presumed 
that  the  breach  of  condition  as  to  one  class  is  a  violation  of  the  con- 
tract, also,  as  to  the  other  class,  because  the  company  would  not 
have  insured  the  one  except  upon  the  condition  imposed  as  to  the 
other,  while,  if  the  loss  of  the  one  class  of  property  could  not  affect 
the  risk  as  to  the  other,  then  it  must  be  presumed  that  there  was  no 
intention  that  the  conditions  as  to  one  should  apply  to  the  risk  as 
to  the  other. 

In  support  of  this  construction  we  find  the  following  pertinent  lan- 
guage used  by  the  supreme  court  of  New  York  in  the  case  of  Merrill 
V.  Insurance  Co.,  73  N.  Y.  452,  29  Am.  Rep.  184:  "When  there 
are  several  subjects  of  insurance  (as  there  are  fourteen  here),  sep- 


WHEN    THE    CONTRACT   IS    DIVISIBLE  61 

arately  valued,  on  which  a  gross  sum  is  insured,  not  exceeding  the 
aggregate  of  that  valuation,  for  the  insurance  of  which  a  premium  in 
gross  is  paid,  it  is  easy  to  see  what  is  the  rate  of  premium  on  the 
whole  valuation,  and  what  is  the  amount  of  premium  on  each  subject 
insured.  This  being  so,  it  seems  fanciful  to  say  that,  if  the  facts 
thus  easily  reached  were  stated  in  detail  in  the  contract,  it  would 
be  severable,  while,  not  being  specifically  spread  out,  it  is  entire.  If 
there  were  anything  in  the  terms  or  nature  of  the  particular  contract, 
or  in  the  circumstances  of  the  case,  or  in  the  nature  of  the  dilTerent 
subjects  of  insurance,  from  which  it  was  to  be  inferred  that  the  in- 
surer w^ould  not  have  been  likely  to  have  assumed  the  risk  on  one 
or  several  of  them  unless  induced  by  the  advantage  and  profit  of 
having  a  risk  on  all,  that  would  be  a  rational  cause  for  deeming 
the  contract  entire.  But  when,  for  aught  that  appears — when,  in- 
deed, it  is  as  likely  that — the  insurer  would  have  taken  a  risk  upon 
any  one  or  any  few  of  the  subjects  insured  at  the  same  rate  of  pre- 
mium as  upon  the  whole,  and  has  in  the  policy  so  separated  the  sub- 
jects, and  so  singled  them  out  by  a  specific  valuation,  as  that  there  is 
no  difficulty  in  distinguishing  one  of  the  subjects  from  the  rest,  and 
closing  the  contract  as  to  that  separately,  and  carrying  forward  the 
contract  as  to  the  rest,  it  does  result  that  the  contract  is  severable 
in  practical  operation,  and  hence  in  law.  And  so.  also,  that,  though 
there  may  have  been  some  conduct  of  the  insured  as  to  some  of  the 
property,  not  evil  in  itself,  but  working  a  breach  of  a  condition  in 
its  letter,  the  efifect  of  that  breach  may  be  confined  to  the  insurance 
upon  that  property,  the  contract  as  to  that  may  be  held  avoided,  and 
as  to  the  other  subjects  held  valid.  There  is  another  rule — that  in  con- 
struing the  consideration,  as  entire  or  distributed,  the  law  will  be 
guided  by  a  respect  to  general  convenience  and  equity,  and  by  the 
good  sense  and  reasonableness  of  the  particular  case ;  for  it  must  be 
supposed  that  it  was  the  intention  of  the  parties  that  such  a  con- 
struction should  take  place,  in  the  occurrence  of  contingencies  not 
contemplated  and  provided  for  at  the  making  of  the  contract." 

In  Insurance  Co.  v.  Pickel,  119  Ind.  155,  21  N.  E.  546.  12  Am. 
St.  Rep.  393,  the  court  uses  this  language :  "In  this  case  we  are 
unable  to  see  how  the  risk  on  the  house  named  in  the  second  and 
third  paragraphs  of  the  answer  could  affect  the  risk  on  the  barn  or 
the  personal  property,  for  the  destruction  of  which  the  suit  was  pros- 
ecuted. The  risks  on  the  different  items  of  property  named  in  this 
policy  are  many  of  them  separate  and  distinct.  It  is  true  that  the 
risk  on  the  household  goods  in  the  house  would  be  affected  by  what- 
ever w^ould  affect  the  risk  on  the  house;  so  the  risk  on  the  grain  in 
the  barn  would  be  affected  by  whatever  would  affect  the  risk  on  the 
barn ;  but  we  think  it  impossible  to  conceive  how  the  risk  on  the 
barn  could  affect  the  risk  on  the  house,  or  vice  versa."  And  it  was 
accordingly  held  in  another  action  between  the  same  parties  (Pickel  v. 
Insurance  Co.,   119  Ind.  291,  21   N.  E.  898)  that  while,  under  the 


52  THE   NATURE    AND   REQUISITES    OF   THE    CONIRACT 

former  case,  the  policy  should  be  treated  as  several  with  reference 
to  the  different  buildings,  it  was  indivisible  with  reference  to  the 
risk  on  the  house,  and  personal  property  contained  therein,  although 
they  were  enumerated  under  separate  clauses  in  describing  the  loss 
to  be  paid ;  and  the  doctrine  of  these  cases  is  reiterated  by  the  same 
court  in  Geiss  v.  Insurance  Co.,  123  Ind.  172,  24  N.  E.  99,  18  Am. 
St.  Rep.  324,  where  it  was  held  that  although  different  classes  of 
personal  property,  involving  the  same  risk,  were  separately  enumer- 
ated, a  breach  of  condition  as  to  one  would  be  a  breach  as  to  all. 

To  the  same  effect,  it  was  held  in  Loomis  v.  Insurance  Co.,  17 
Wis.  87,  45  N.  W.  813,  8  L.  R.  A.  834,  20  Am.  St.  Rep.  96,  that, 
"although  the  insurance  is  distributed  to  the  different  items  of  insured 
property,  the  contract  is  indivisible  if  the  breach  of  contract  as  to  an 
item  of  the  property  affects,  or  may  reasonably  be  supposed  to  affect, 
the  other  items  by  increasing  the  risk  thereon."  In  support  of  the 
same  general  proposition,  see  Loehner  v.  Insurance  Co.,  17  Mo.  247; 
Koontz  V.  Insurance  Co.,  42  Mo.  126,  97  Am.  Dec.  325;  Insurance 
Co.  V.  Lawrence,  4  Aletc.  (Ky.)  9,  81  Am.  Dec.  521 ;  Insurance  Co. 
V.  Crawford,  121  Ala.  258,  25  South.  912,  17  Am.  St.  Rep.  55;  As- 
surance Co.  V.  Glenn,  13  Ind.  App.  365,  40  N.  E.  926,  41  N.  E.  847, 
55  x\m.  St.  Rep.  225.  A  recent  case  strongly  supporting  the  proposi- 
tion that  the  contract  is  indivisible,  and  a  breach  of  condition  as  to 
one  class  of  property  will  avoid  it  as  to  all  the  property  covered,  is 
Insurance  Co.  v.  Knight,  111  Ga.  622,  36  S.  E.  821,  52  L.  R.  A. 
70,  78  Am.  St.  Rep.  216. 

But  it  is  unnecessary  to  elaborate  by  quotations  from  or  citations 
of  the  many  cases  in  which  this  question  has  been  considered.     The 
citations  found  in  several  of  the  recent  cases  above  referred  to  cover 
the   whole  ground.      It  may  be   said,   further,   that   several   cases   in 
which  the  courts  have  announced  the  unqualified  rule  that  a  breach 
of  condition  as  to  one  class  or  item  of  property  covered  by  the  policy 
will  constitute  a  breach  of  the  contract  as  to  all  the  property  covered 
are  cases  where  the  dift'erent  classes  or  items  of  property  were  so 
situated  with   reference  to  each  other  that  the   risk  as  to  one  con- 
stituted a  risk  as  to  all,  and  in  these  cases  the  same  result  might 
have  been  reached  by  adopting  the   rule  which  we  have   above   an- 
nounced as  supported  by  the  weight  of  authority.     See,  as  illustra- 
tions,  Lee   V.    Insurance    Co.,   3   Gray   (^lass.)    583;     Association   v. 
Williamson,  26  Pa.  196;    Insurance  Co.  v.  Hamilton,  82  Md.  88,  33 
Atl.  429.  30  L.  R.  A.  633,  51  Am.  St.  Rep.  457;   Cuthbertson  v.  In- 
surance Co.,  96  N.  C.  480,  2  S.  E.  258.     It  may  be  noticed,  also,  that 
the  North  Carolina  court,  in  a  later  case  than  that  last  cited,  although 
not   involving   the    same   question,   has    held   that   where   the    policy 
classifies  and  specifies  numerous  items  of  property,  and  the  sums  of 
money  for  which  they  are  severally  insured,  the  contract  is  not  single, 
but  severable.     Pioneer  Mfg.  Co.  v.  Phoenix  Assur.  Co.,  110  N.  C. 
176,  14  S.  E.  731,  28  Am.  St.  Rep.  673. 


WHEN    THE    CONTRACT   IS    DIVISIBLE  53 

The  question  has  not  been  fully  discussed  in  any  cases  which  have 
been  decided  by  this  court.  In  Garver  v.  Insurance  Co.,  69  Iowa,  202, 
28  N.  W.  555,  the  proposition  is  broadly  laid  down  that  where  the 
premium  is  in  gross  the  contract  is  not  divisible,  and  a  breach  of 
warranty  as  to  a  part  of  the  property  will  vitiate  the  policy  as  to  the 
whole.  But  it  is  to  be  noticed  that  there  the  policy  covered  a  barn 
and  certain  horses,  and  the  court  might  well  have  held  that  the  risk, 
so  far  as  the  horses  were  concerned,  was  involved  in  any  risk  affecting 
the  barn;  and  the  conclusion  was  therefore  in  accordance  with  the 
rule  which  we  think  to  be  the  proper  one,  although  we  do  not  regard 
the  reason  given  as  satisfactory.  In  Kahler  v.  Insurance  Co.,  106 
Iowa,  380,  76  N.  W.  734,  the  view  expressed  in  the  Garver  Case  was 
qualified  so  as  to  leave  the  way  open  for  adopting  the  position  which 
we  now  take.  We  therefore  hold  on  this  question,  as  involved  in 
the  case  before  us,  that  entirety  of  premium  does  not  necessarily 
prove  that  the  contract  is  indivisible,  and  that  where  it  appears  from 
the  terms  of  the  policy  that  distinct  items  or  classes  of  property 
were  separately  insured  the  policy  may  be  valid  as  to  one  item  or 
class,  although  it  is  invalid  as  to  another  item  or  class  by  reason 
of  breach  of  conditions  of  the  policy  with  reference  thereto,  provided 
it  appears,  also,  that  the  risk  which  it  was  intended  to  exclude  by 
the  condition  which  is  broken  does  not  apply  to  the  other  items  or 
classes  of  property.  In  this  case  a  chattel  mortgage  on  the  cows 
and  horses  could  not  in  any  way  affect  the  nature  of  the  risk  as  to 
the  dwelling  house  and  contents,  and  therefore  we  find  that  a  breach 
of  a  condition  in  the  policy  as  to  the  one  class  of  property  did  not 
invalidate  the  insurance  as  to  the  other.     *     *     *     Affirmed.^*    ■ 

2  4  As  to  entirety  or  divisibility  of  rislv.  see,  also.  Havens  v.  Home  Ins. 
Co..  Ill  Tnd.  90,  12  N.  B.  137.  60  Am.  Rep.  689  (1887);  Plicenix  Ins.  Co.  v. 
Pickel,  119  ind.  155.  21  N.  E.  546,  12  Am.  St.  Rep.  393  (1889).  Compare, 
Clinton  v.  Norfolk  Mutual  Fire  Ins.  Co.,  post,  p.  68. 


54  PARTIES 


PARTIES 

I.  Contracts   Made   by   Insurers   Not    Complying   with   Statutory 

Requirements  ^ 


PENNYPACKER  v.  CAPITAL  INS.  CO. 

(Supreme  Court  of  Iowa,  1890.    80  Iowa,  56,  45  N.  W.  408,  8  L.  R.  A.  236, 

20  Am.  St.  Rep.  395.) 

Action  on  a  policy  of  fire  insurance  on  property  situated  in  Penn- 
sylvania. The  defendant  answered  alleging  that  the  policy  was  void 
because  the  company,  an  Iowa  corporation,  had  not  complied  with 
the  laws  of  Pennsylvania  in  relation  to  foreign  insurance  companies. 
The  requirements  of  the  laws  of  Pennsylvania  are  "that,  before  any 
insurance  company  not  of  that  state  shall  be  permitted  to  transact 
any  insurance  business  within  the  state  of  Pennsylvania,  or  to  issue 
any  policies  of  insurance  upon  property  within  said  state,  either  by 
itself  or  agents,  a  certificate  must  be  obtained  of  the  insurance  com- 
missioner of  said  state  certifying  that  it  has  so  complied  with  the 
laws  of  Pennsylvania,  and  is  authorized  to  transact  such  business 
within  the  state ;  that  any  company,  not  of  said  state,  that  shall  do  an 
insurance  business  within  said  state  without  having  first  qualified 
itself  as  provided,  and  without  first  receiving  the  certificate  required, 
shall  pay  a  fine  and  penalty  for  such  offense  to  said  state." 

The  plaintiff  demurred  to  the  answer  on  the  following  grounds : 
(1)  The  defendant  is  estopped  from  alleging  its  want  of  authority  to 
do  business  in  the  state  of  Pennsylvania;  (2)  the  statute  of  Pennsyl- 
vania does  not  render  the  contract  of  insurance  referred  to  void ;  (3) 
the  said  count  shows  that  the  defendant  is  liable  to  a  penalty  for  doing 
an  unauthorized  business  in  the  state  of  Pennsylvania,  but  shows  no 
defense  to  the  claim  of  the  plaintiff  herein  ;  (4)  it  does  not  appear  that 
the  alleged  contract  of  insurance  was  made  in  the  state  of  Pennsyl- 
vania, and  therefore  the  laws  of  Pennsylvania  regarding  insurance 
would  have  no  effect ;  (5)  the  defendant  having  issued  to  the  plaintiff 
its  policy  of  insurance,  cannot  now  allege  a  violation  of  law  on  its 
part  to  avoid  its  liability  under  said  policy. 

This  demurrer  was  sustained,  and  defendant  excepted.  There 
was  a  judgment  for  plaintiff  and  defendant  appeals. 

Given,  J.^  The  questions  raised  and  argued  on  the  demurrer  may 
be  resolved  into  the  single  inquiry,  is  the  contract  of  insurance  sued 

1  For  disaission  of  principles,  see  Vance  on  r,]surance,  §  39.  See,  also. 
Cooley.  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  5S1-594. 

2  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


CONTRACTS    NOT   COMPLYING    WITH    STATUTES  55 

Upon  void?  It  is  alleged  that  it  is  void  because  the  defendant  had 
not  and  was  not  entitled  to  qualify,  under  the  laws  of  Pennsylvania, 
to  contract  insurance  upon  property  in  that  state  at  the  time  this 
policy  was  issued,  and  because  the  plaintiff  received  it  knowing  that 
fact.  For  the  purposes  of  the  demurrer  these  allegations  are  to  be 
taken  as  true,  and  we  are  to  say  whether,  being  true,  they  render  the 
policy  void.  Appellant's  contention  is  that  the  contract  was  made, 
and  policy  issued  and  accepted,  in  violation  of  the  laws  of  Penn- 
sylvania, as  set  out  in  the  answer,  and  that,  the  plaintiff  having  re- 
ceived the  policy  knowing  that  fact,  the  parties  are  in  pari  delicto, 
and  the  law  will  not  enforce  the  contract  at  the  suit  of  either.  Ap- 
pellee contends  that  the  policy  was  issued  and  is  payable  in  Iowa,  and 
its  validity  is  therefore  to  be  determined  by  the  laws  of  Iowa,  and 
that  the  statute  set  out  did  not  forbid  the  issuing  the  policy  in  suit, 
nor  make  the  same  void,  but  simply  declares  the  company  liable  to 
a  fine  for  issuing  it. 

It  does  not  appear  from  the  answer,  nor  from  it  and  the  petition, 
where  the  contract  was  made,  premium  paid,  or  policy  delivered,  nor 
where  it  is  payable.  From  the  facts  that  the  company  is  of  Iowa, 
and  the  insured  property  in  Pennsylvania,  we  may  infer  the  contract 
to  have  been  made  in  either  state  as  readily  as  the  other.  Such 
being  the  state  of  the  pleadings,  we  are  not  called  upon  to  deter- 
mine v/hat  effect  the  law  of  Pennsylvania  would  have  upon  this  policy 
as  an  Iowa  contract. 

The  principle  that  contracts  made  in  violation  of  law  are  void  is 
too  well  established  to  require  citations.  "The  well-settled  general 
rule  is  that,  when  a  statute  prohibits  or  attaches  a  penalty  to  the 
doing  of  an  act,  the  act  is  void,  and  will  not  be  enforced,  nor  will 
the  law  assist  one  to  recover  money  or  property  which  he  has  ex- 
pended in  the  unlawful  execution  of  it.  Or,  in  other  words,  a  penalty 
implies  a  prohibition  though  there  are  no  prohibitory  words  in  the 
statute,  and  the  prohibition  makes  the  act  illegal  and  void.  *  *  * 
But,  notwithstanding  this  general  rule,  it  must  be  apparent  to  every 
legal  mind  that,  when  a  statute  annexes  a  penalty  for  the  doing  of 
an  act,  it  does  not  always  imply  such  a  prohibition  as  will  render  the 
act  void."  Pangborn  v.  Westlake,  36  Iowa,  548.  The  law  of  Penn- 
sylvania, as  set  out,  provides  that  no  insurance  company  not  of  that 
state  shall  insure  property  therein  unless  it  has  a  certain  amount  of 
capital  stock,  has  complied  with  certain  requirements,  and  has  ob- 
tained a  certificate  from  the  insurance  commissioner  that  it  is  qualified 
to  do  business  in  that  state,  and  that  any  such  company  that  shall 
do  business  in  that  state  without  having  first  qualified  itself,  and 
without  first  having  received  a  certificate,  as  prescribed,  from  the 
insurance  commissioner,  "shall  pay  a  fine  and  penalty  for  such  of- 
fense." The  evident  purpose  of  such  a  law  is  the  protection  of  those 
paying  for  insurance  upon  property  in  that  state.  The  prohibition 
and  penalty  is  against  the  company  only.     No  duty   is   required  of 


56  PARTIES 

the  insured,  and  no  act  upon  his  part  expressly  prohibited.  There 
is  nothing  in  the  law  declaring  what  effect  it  shall  have  upon  policies 
issued  and  accepted  as  this  is  alleged  to  have  been. 

A  number  of  cases  are  cited  by  appellant  where,  in  actions  brought 
by  the  insurance  company  to  enforce  rights  under  the   contract  of 
insurance,  it  was  held  that  statutes  similar  to  that  set  out  were  pro- 
hibitory and  the  contracts   void;    but   in  none   of  those   cases   is   it 
held  that  they  are  void  as  to  the  assured.    The  Manistee,  5  Biss.  382, 
Fed.  Cas.  No.  9,027,  is  a  case  wherein  the  statute  of  Illinois  was  under 
consideration.     That  statute  required  foreign  insurance  companies  to 
produce  certain  statements,  and  to  procure  authority  from  the  auditor 
of  state  to  transact  business  within  the  state,  and  declare  it  unlawful 
for  any  agent  to  do  business  without  having  first  complied  wuth  those 
laws.     It  was  provided  that,  upon  conviction  for  violating  these  re- 
quirements,  punishment  by  fine  or   imprisonment,   or  both,   may  be 
imposed.     The  court  says:    "Those  statute  laws  do  not  declare  void 
policies  issued  by  foreign  companies,  through  a  local  agent,  in  dis- 
regard or  violation  of  them.     The  object  of  these  statutes  was   for 
the    security    of    citizens    doing    business    with    such    companies,    by 
bringing  them  as  near  as  possible  to  local  corporations,  and  also  as 
a  provision   for  revenue.     Where  a   statute   prohibits   or   annexes   a 
penalty  to   its  commission,   the   act   is  made   unlawful;    but   it   does 
not  follow  that  the  unlawfulness  of  the  act  was  meant  by  the  leg- 
islature to  avoid  a  contract  made  in  contravention  of  it.     Where  a 
statute  is  silent,  and  contains  nothing  from  which  the  contrary  can 
properly  be  inferred,  a  contract  in  contravention  of  it  is  void.     But 
the  whole  statute  must  be  examined  in  order  to  decide  whether  or 
not  it  does  contain  anything  from  which  the  contrary  can  be  prop- 
erly inferred.     There  is  no  penalty  pronounced  against  a  person  for 
obtaining  a  policy   from,  or  doing  business   with,  the  company  that 
has  not  complied  with  the  requirements  of  those  statutes." 

Insurance  Co.  v.  Mc^Millen,  24  Ohio  St.  67,  is  somewhat  in  point. 
That  was  an  action  upon  a  policy  of  life  insurance  issued  by  the  plain- 
tiff in  error.  The  company  claimed  that  its  failure  to  comply  with  a 
statute  similar  to  that  under  consideration  rendered  the  policy  void. 
The  court  says:  "Whether  the  statute  was  meant  to  invalidate  poli- 
cies issued  by  companies  in  contravention  of  its  provisions  is  to  be 
determined  from  a  consideration  of  the  statute  as  a  whole.  The  object 
of  the  act  is  not  to  make  the  business  of  life  insurance  unlawful. 
The  statute  is  designed  for  the  protection  of  policy-holders  and 
others  dealing  with  insurance  companies.  To  this  end,  it  is  made 
unlawful  for  persons  to  act  on  behalf  of  such  companies  until  the 
provisions  of  the  statute  have  been  complied  with.  But  we  do  not 
think  it  was  intended  to  devolve  on  persons  dealing  with  the  com- 
panies the  duty  and  risk  of  ascertaining  whether  they  had  complied 
with   the   statute.     On  the   contrary,   it  seems  to  have  been   the  in- 


CONTRACTS    NOT   COMPLYING    WITH    STATUTES  57 

tention  of  the  legislature  to  rely  on  the  penalties  imposed  as  suffi- 
cient to  insure  such  compliance." 

In  Pangborn  v.  Westlake,  supra,  the  question  was  whether  a 
contract  for  the  sale  of  a  lot  in  a  plat  that  had  not  been  recorded 
was  void  because  of  the  statute  providing  that  any  person  who  shall 
dispose  of,  or  offer  for  sale,  any  lot  in  any  town  or  addition  until 
the  plat,  was  acknowledged  and  recorded,  shall  forfeit  $50  for  each 
lot  sold  or  disposed  of.  This  statute  is  similar  in  several  respects 
to  that  in  question.  It  is  quite  as  prohibitory.  It  is  addressed  to 
the  seller  alone.  It  is  for  the  protection  of  the  purchasers,  and  im- 
poses no  duty  upon  or  prohibition  against  them.  In  passing  upon  the 
question,  this  court  said:  "We  are,  therefore,  brought  to  the  true 
test,  which  is  that  while,  as  a  general  rule,  a  penalty  implies  a  pro- 
hibition, yet  the  courts  will  always  look  to  the  language  of  the 
statute,  the  subject-matter  of  it,  the  wrong  or  evil  which  it  seeks  to 
remedy  or  prevent,  and  the  purpose  sought  to  be  accomplished  in  its 
enactment;  and  if,  from  all  these,  it  is  manifest  that  it  was  not  in- 
tended to  imply  a  prohibition,  or  to  render  the  prohibited  act  void, 
the  courts  will  so  hold,  and  construe  the  statute  accordingly."  See, 
also,  Hill  V.  Smith,  Morris,  70;  Tootle  v.  Taylor,  64  Iowa,  629.  21 
N.  W.  115. 

It  is  argued  that  to  hold  this  contract  not  prohibited  is  to  defeat 
the  purposes  of  the  law" ;  that  it  will  admit  foreign  companies  to  do 
business  subject  only  to  such  fines  as  may  be  assessed.  In  view 
of  the  language  of  the  law  as  stated,  the  absence  of  express  pro- 
hibition, and  the  evident  purpose  to  protect  the  insured,  we  are  clearly 
of  the  opinion  that  it  was  not  intended  to  render  contracts  such  as 
that  in  suit  void.  To  so  hold  does  not  necessarily  admit  foreign 
companies  to  do  business  in  that  state  in  disregard  of  its  laws.  The 
power  of  the  courts  is  ample  to  compel,  by  fine  and  otherwise,  com- 
pliance with  the  law  of  the  state.  The  contract  being  valid,  the  mat- 
ter demurred  to  is  no  defense,  and  the  question  of  estoppel  does  not 
arise.  We  think  the  demurrer  was  properly  sustained.  *  *  * 
Affirmed.^ 


SEAMANS  V.  CHRISTIAN  BROS.  MILL  CO 

(Supreme  Court  of  Minnesota,  1896.    66  Minn.  205,  68  N.  W.  1065.) 

Action  by  S.  H.  Seamans,  receiver  of  the  Wisconsin  Mutual  Fire 
Insurance  Company,  against  the  Christian  Bros.  Mill  Company,  for 
an  insurance  premium.  From  a  judgment  for  defendant,  plaintiff  ap- 
peals. 

3  See,  also.  Ganser  v.  Fireman's  Fund  Ins.  Co.,  34  Minn.  372.  25  N.  W. 
943  (1885),  wherein  it  is  said  tliat  plaintiff  need  not  allege  in  his  complaint 
that  the  company  has  complied  with  the  laws  of  the  state  regulating  foreign 
insurance  companies. 


58  PARTIES 

Canty,  J.*  The  Wisconsin  Mutual  Life  Insurance  Company  is, 
as  its  name  indicates,  a  corporation  organized  under  the  laws  of  the 
state  of  Wisconsin  to  carry  on  a  mutual  life  insurance  business. 
It  became  insolvent,  and  plaintiff  was  appointed  receiver  for  it  by  the 
courts  of  that  state.  Defendant,  a  corporation  organized  under  the 
laws  of  this  state  and  doing  business  therein,  procured  from  said  in- 
surance company  a  policy  of  insurance  on  its  property  situated  in 
Minneapolis,  in  this  state.  This  suit  is  brought  to  recover  a  balance 
of  unpaid  premium  claimed  to  be  due  on  the  policy.  One  of  the  de- 
fenses alleged  by  defendant,  and  sustained  by  the  court  below,  is 
that  said  insurance  company  never  complied  in  any  respect  with  the 
statutes  of  this  state.  Judgment  was  ordered  for  defendant,  and 
from  the  judgment  entered  accordingly,  plaintiff  appeals. 

The  contract  of  insurance  was  made  by  correspondence  between 
the  two  corporations.  The  trial  court  found  as  a  fact  that  this  con- 
tract was  made  in  this  state.  Appellant  assails  this  finding  as  not 
supported  by  the  evidence,  but,  from  the  view  we  take  of  it,  the 
point  is  not  material;  and  we  are  of  the  opinion  that  even  if  the 
contract  was  made  in  Wisconsin,  as  contended  by  appellant,  we  would 
still  refuse  to  enforce  it,  as  being  contrary  to  the  policy  of  our  laws, 
and  an  attempt  to  evade  those  laws.  Among  the  statutory  pro- 
visions material  here  are  the  following  sections  of  the  General  Stat- 
utes of  1894: 

"Sec.  3157.  It  shall  be  unlawful  for  insurers  or  their  agents  to 
make,  negotiate  or  solicit  within  this  state  any  contract  of  insurance 
except  as  authorized  by  this  act.     *     *     *  " 

*  *  *  Section  3167  provides  that  on  complying  with  certain 
conditions  the  insurance  commissioner  may  issue  a  license  or  certifi- 
cate to  foreign  companies,  authorizing  them  to  transact  business  in 
this  state;  and  section  3199  provides  that  no  foreign  mutual  fire 
insurance  company  shall  do  business  in  this  state  unless  it  has  an 
actual  cash  surplus  of  $200,000  over  all  liabilities,  which  the  court 
found  this  insurance  company  did  not  have.  Many  other  restrictions 
on  such  companies  may  be  found  in  the  sections  immediately  preced- 
ing and  those  following  the  ones  above  mentioned. 

These  statutory  provisions  are  police  regulations  intended  to  pro- 
tect people  and  property  in  this  state  against  spurious  and  irresponsible 
insurance  companies.  It  is  plainly  the  intent  of  these  statutory  pro- 
visions to  compel  all  such  insurers  doing  business  in,  or  taking  risks 
on  property  in,  this  state  to  comply  with  our  local  laws  and  submit 
to  our  local  courts.  Neither  can  there  be  any  doubt  about  the  au- 
thority of  the  legislature  to  pass  such  laws.  Paul  v.  Virginia,  8 
Wall.  168,  19  L.  Ed.  357;  Hooper  v.  California,  155  U.  S.  648,  15 
Sup.  Ct.  207,  39  L.  Ed.  297.  It  is  a  general  rule  that  a  contract 
made  in  one  state  will  be  enforced  in  another  state,  though  contrary 

4  Part  of  the  opinion  is  omitted. 


CONTRACTS    NOT   COMPLYING    WITH    STATUTES  59 

to  the  laws  or  public  policy  of  the  latter  state.  3  Am.  &  Eng.  Enc. 
Law,  543.  This  rule  is  more  especially  applicable  when  no  particular 
Iilace  of  performance  is  contemplated  by  the  contract,  but  the  place 
of  performance  may  be  anywhere.  It  is  also  a  general  rule  that 
where  a  contract  is  entered  into  in  one  state,  to  be  performed  in  a 
certain  other  state,  the  validity  of  the  contract  will  be  determined 
by  the  law  of  the  latter  state.  Id.  542,  544;  Whart.  Confl.  Laws,  §§ 
398,  486.  We  will  not  attempt  to  discuss  the  many  and  complex 
distinctions  that  have  arisen  where  these  two  rules  came  in  conflict. 
Usually,  in  such  a  case  of  conflict  of  laws,  it  is  little  more  than  a 
question  of  determining  the  intention  of  the  parties  to  the  contract, — 
whether  they  intended  to  be  governed  by  the  one  law  or  the  other. 
But  cases  arise  where  the  parties  are  not  thus  at  liberty  to  select 
which  law  they  choose.     See  Whart.  Confl.  Laws,  §§  490-494. 

The  laws  or  public  policy  of  a  state  may  prohibit  the  making  of 
a  certain  contract,  but  it  does  not  follow  that  if  the  contract  is  made 
elsewhere  such  state  may  not,  within  its  borders,  enforce  the  same 
by  extending  to  it  the  comity  which  exists  between  states.  But. 
again,  the  laws  and  public  policy  of  the  state  may  be  such  as  to 
completely  stamp  out  this  comity,  and  prohibit  within  the  jurisdic- 
tion of  the  state  the  enforcement  of  the  contract.  Especially  is  this 
so  if,  though  the  contract  was  made  elsewhere,  it  was  to  be  per- 
formed within  the  state.  There  are  many  cases  extending  this  doc- 
trine of  comity  to  contracts  of  insurance  made  elsewhere,  and  in- 
suring property  in  the  state  in  which  the  contract  was  enforced.  See 
Whart.  Confl.  Laws,  §§  465-467.  But,  as  before  stated,  it  depends 
on  the  laws  and  public  policy  of  such  state  whether  or  not  it  will 
thus  enforce  the  contract.  The  laws  and  public  policy  may  be  such 
as  to  destroy  this  comity  and  prohibit  such  enforcement  of  the  con- 
tract. 

We  are  of  the  opinion  that  the  laws  and  public  policy  of  this 
state  in  reference  to  the  insuring  of  property  are  of  this  character. 
The  restrictions  in  our  statutes  are  so  many,  and  the  repressive  char- 
acter of  the  legislation  such,  that  we  must  hold  this  to  be  the  public 
policy  of  this  state.  This  seems  also  to  be  the  character  of  the  in- 
surance legislation  in  Iowa  and  Michigan,  as  appears  by  the  cases 
of  Seamans  v.  Zimmerman,  91  Iowa,  363,  59  N.  W.  290,  and  Sea- 
mans  V.  Temple  Co.,  105  Mich.  400,  63  N.  W.  408,  28  L.  R.  A.  430, 
55  Am.  St.  Rep.  457,  where  this  same  receiver  was  defeated  in  at- 
tempts to  collect  unpaid  premiums  from  citizens  of  those  states.  Nei- 
ther does  it  make  any  difference  that  the  insurer  is  a  mutual  company 
or  that  it  is,  as  appellant  claims,  unincorporated.  Neither  is  this  de- 
cision in  conflict  with  Ganser  v.  Insurance  Co.,  34  Minn.  372,  25  N. 
W.  943,  where  it  was  held  that  the  insured  can  recover  the  loss  even 
though  the  insurer  has  not  complied  with  the  statutory  requirements 
so  as  to  be  authorized  to  do  business  in  this  state.  The  very  object 
of  these  statutory  provisions  is  the  protection  of  the  insured,  and  the 


no  PARTIES 

parties  are  not  in  pari  delicto.  This  disposes  of  the  case,  and  renders 
it  unnecessary  to  consider  the  other  questions  raised.  Judgment  af- 
firmed. 


II.  Infants  as  Parties  Insured^ 


JOHNSON  V.  NORTHWESTERN  MUT.  LIFE  INS.  CO. 

(Supreme  Court  of  Minnesota,  1£94.     56  Minn.  365.  57  N.  W.  934,  59  N.  W. 
992,  26  L.  R.  A.  187,  45  Am.  St.  Rep.  473.) 

Action  by  Martin  C.  Johnson  against  the  Northwestern  Mutual  Life 
Insurance  Company  to  rescind  a  policy  of  insurance  and  recover  the 
amount  paid  as  premiums.  From  an  order  overruling  a  demurrer  to 
the  complaint,  defendant  appeals. 

Buck,  J.  On  the  25th  day  of  October,  1888,  the  plaintiff,  Johnson, 
who  was  then  a  minor,  17  years  old,  obtained  a  policy  of  insurance 
on  his  own  life  in  the  Northwestern  Mutual  Life  Insurance  Company, 
this  defendant,  for  the  sum  of  $1,000,  in  consideration  of  the  payment 
by  him  of  the  premium  of  $23.29,  and  the  semiannual  payment  of  a 
like  sum  to  defendant  on  or  before  noon  of  the  25th  days  of  October 
and  April  thereafter  in  each  and  every  year  during  the  continuance 
of  the  policy,  viz.  for  20  years.  He  made  eight  semiannual  payments 
amounting  to  the  total  sum  of  $186.32,  and  immediately  thereafter 
plaintiff  attained  his  majority,  or  full  age  of  21  years;  and  thereupon, 
on  the  21st  day  of  December,  1892,  he  duly  served  upon  said  defend- 
ant his  notice  in  writing  that  he  had  arrived  at  his  majority,  and  that 
he  elected  to  avoid  the  contract  of  insurance  between  the  defendant 
and  himself,  and  offered  to  return  said  policy  to  the  defendant,  and 
demanded  of  the  defendant  that  it  return  to  him  the  moneys  which 
he  had  paid  to  said  company,  amounting  to  the  sum  above  named, 
which  the  defendant  refused  to  do,  whereupon  he  brought  this  ac- 
tion to  recover  of  the  defendant  the  amount  so  paid,  upon  the  ground 
that  he  was  an  infant  at  the  time  of  the  execution  of  the  said  con- 
tract and  during  the  times  when  he  made  the  semiannual  payments, 
as  herein  stated. 

The  defendant  interposed  a  demurrer  to  the  plaintiff's  complaint 
upon  the  ground  that  the  complaint  did  not  state  facts  sufficient  to 
constitute  a  cause  of  action.  The  court  below  overruled  the  demur- 
rer, and  the  defendant  appealed  to  this  court. 

In  its  memorandum  the  court  below  gave  as  its  reason  for  over- 
ruling the  demurrer  that  "this  contract  of  insurance  was  not  bene- 
ficial to  the  insured;    it  was  for  the  benefit  of  third  persons."     We 

B  For  discussion  of  principles,  see  Vance  on  Insurance,  §  41.  See,  also,. 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1.  pp.  72-77. 


INFANTS   AS   PARTIES   INSURED  61 

do  not  see  how  the  court  fell  into  such  an  error,  for  the  plain  pro- 
visions of  the  policy  show  clearly  that  it  was  for  the  benefit  of  the 
plaintiff,  for  it  expressly  provides  that  at  the  end  of  20  years  the 
policy  is  payable  to  himself  if  living,  and  after  10  years  he  could  share 
in  the  company's  surplus,  according  to  usage,  at  each  distribution,  un- 
til all  contributions  to  the  surplus  funds,  found  in  the  course  of  mak- 
ing such  contributions  to  have  arisen  from  the  policy,  should  have 
been  returned.  After  three  or  more  annual  premiums  were  paid  in 
cash,  if  he  made  default  in  the  payment  of  any  premium  on  the  day 
it  became  due,  he  was  entitled  to  a  paid-up  nonparticipating  policy  for 
as  many  twentieth  parts  of  the  original  sum  insured  as  there  were 
complete  annual  premiums  so  paid.  There  were  also  other  benefits 
which  he  would  receive,  which  we  need  not  further  specify  particu- 
larly. But,  notwithstanding  the  wrong  reason  given  by  the  trial  court 
for  its  decision,  if  the  decision  was  correct,  it  must  stand. 

The  question  of  the  proper  construction  of  contracts  between  an 
infant  and  an  adult  is  frequently  one  of  great  difficulty.  The  power 
which  exists  upon  the  part  of  an  infant  to  insist  upon  the  perform- 
ance of  a  contract  which  is  for  his  benefit  and  to  repudiate  one  which 
is  against  his  interest  necessarily  results  in  this  condition  of  affairs, 
and  the  only  method  for  courts  to  deal  with  such  questions  is  to  ap- 
ply so  far  as  possible  the  legal  or  equitable  rules  to  each  case  as  it 
may  present  itself  for  judicial  determination.  The  infirmities  which 
are  always  attendant  upon  infancy  are  so  many,  and  present  them- 
selves in  so  many  different  phases,  that  the  law  must  necessarily  throw 
its  protection  around  them,  and  allow  them  to  avoid  acts  which  are 
obviously  injurious,  and  which  are  brought  about  by  their  own  im- 
prudent conduct,  or  by  the  evil  designs  of  others.  But  there  are  con- 
tracts made  by  infants  which  are  valid  and  binding  upon  them,  such 
as  contracts  for  necessaries.  It  is  conceded,  however,  that  this  con- 
tract is  not  one  coming  within  the  term  "necessaries,"  and  it  must 
also  be  conceded  that  there  was  no  fraud  on  the  part  of  the  defend- 
ant whereby  the  plaintiff  was  induced  to  enter  into  this  contract  of 
insurance.  Nor  does  the  question  of  delay  on  the  part  of  plaintiff" 
in  disaffirming  this  contract  enter  into  the  case  for  discussion  or  for 
determination.  If  he  had  a  right  to  disaffirm  the  contract  at  all,  it 
was  done  promptly,  and  without  delay,  after  he  attained  his  majority. 

Was  this  contract  void  or  voidable?  We  are  of  the  opinion  that 
it  was  not  void.  It  was  for  the  benefit  of  the  infant.  That  is  to  say, 
construing  it  in  accordance  with  the  well-understood  business  princi- 
ples and  practical  experience  of  the  age,  it  should  be  deemed  one 
beneficial  to  him.  Like  all  business  ventures,  even  among  adults,  it 
might  prove  disastrous  or  it  might  be  of  benefit  to  the  plaintiff".  It 
was  the  ordinary  policy  of  insurance  upon  the  usual  terms,  and  in  a 
solvent  company.  At  least  no  suggestion  is  made  to  the  contrary. 
Was  the  policy  voidable,  and,  if  so,  was  it  of  that  character  which 
would  not  only  permit  the  plaintiff"  to  defend  against  the  collection  of 


62  PARTIES 

anything  further  on  the  policy,  but,  by  reason  of  his  infancy,  enti- 
tle him,  when  arrivng  at  his  majority,  to  collect  back  whatever  he 
had  paid  while  an  infant?  We  are  of  the  opinion  that  the  contract 
was  voidable.  Even  if  the  contract  was  beneficial  to  him  while  he 
was  an  infant,  in  the  sense  that  if  he  retained  it  there  might  be  cer- 
tain contingencies  which  would  arise  whereby  he  would  be  entitled  to 
receive  the  actual  benefits  mentioned  in  the  policy,  yet  he  does  not 
seek  to  retain  the  policy,  or  claim  any  actual  benefits  under  its  terms, 
either  at  present  or  in  the  future.  All  that  he  could  return  or  surren- 
der up  he  offered  to  do  at  the  very  earliest  opportunity  after  arriv- 
ing at  full  age.  He  has  secured  no  money  or  property  under  it  or  by 
virtue  of  its  terms,  and  no  consideration  other  than  the  contingent  one 
which  we  have  mentioned.  He  has  not  squandered  anything  which 
he  has  received  from  defendant.  He  retains  nothing  either  of  actual 
value  or  any  right.  In  no  way  has  he  appropriated  any  of  the  fruits 
of  the  contract  to  his  own  advantage,  nor  does  he  seek  to  do  so. 
The  defendant  has  had  the  use  of  the  money  paid  it  for  several  years. 
As  between  the  two  parties,  the  defendant  so  far  has  profited  by  the 
contract,  li  the  plaintiff  succeeds  in  this  action,  the  defendant  suf- 
fers no  loss  or  damage  except  to  return  to  plaintiff  just  what  it  got 
of  him  while  an  infant. 

It  did  not  obtain  the  money  of  the  plantiff,  it  is  true,  through  de- 
ceit, fraud,  or  concealment  of  any  fact,  nor  in  any  way  impose  upon 
the  infant,  but  it  did  obtain  and  receive  a  fund  belonging  to  him 
which  it  was  not  necessary  for  him  to  part  with.  This  was  done  at 
a  time  when  the  law  adjudges  him  incapable  of  determining  whether 
it  was  for  his  benefit  or  not.  To  leave  this  question  of  making  con- 
tracts to  the  immature  judgment  of  infants  who  are  easily  influenced 
or  misled,  and  frequently  to  their  great  injury,  and  then  have  the 
courts  continually  called  upon  to  decide  whether  the  contract  was  of 
such  a  beneficial  nature  to  the  infant  that  it  might  be  enforced  against 
him,  would  lead  to  an  endless  variety  of  decisions.  The  interest  of 
the  infant  will  be  best  subserved  by  holding  such  contracts  voidable. 
It  is  a  rule  which  can  be  appropriately  applied  in  this  case,  for  the 
plaintiff  has  performed  all  that  can  be  reasonably  asked  of  him  to 
do.  We  have  examined  many  of  the  authorities  cited  by  the  counsel 
for  the  appellant  in  their  brief,  but  we  are  of  the  opinion  that  the 
rule  heretofore  laid  down  in  this  court  is  the  correct  one  to  follow, 
and  is  applicable  to  this  case.  Miller  v.  Smith,  26  Minn.  248,  2  N. 
W.  942,  37  Am.  Rep.  407 ;  Conrad  v.  Lane,  26  Minn.  389,  4  N.  W. 
696,  37  Am.  Rep.  412.     The  order  appealed  from  is  affirmed. 

On  Rehearing. 

AliTCHELL,  J.°  This  case  was  argued  and  decided  at  the  last  term 
of  this  court.    56  Minn.  365,  57  N.  W.  934,  26  L.  R.  A.  187,  45  Am. 

6  Part  of  the  opinion  of  Mitchell,  J.,  on  rehearing,  is  omitted. 


INFANTS   AS   PARTIES   INSURED  C3 

St.  Rep.  473.  A  reargument  was  granted  for  the  reasons  that  al- 
though the  amount  was  small  the  legal  principles  involved  were  very 
important;  the  time  permitted  for  argument  under  our  rules  was 
brief;  the  case  was  decided  near  the  end  of  the  term,  without,  per- 
haps, the  degree  of  consideration  that  its  importance  demanded ;  and, 
on  further  reflection,  we  are  not  satisfied  that  our  decision  was  correct. 
The  former  opinion  laid  down  the  following  propositions,  to  which 
we  still  adhere:  (1)  That  the  contract  of  insurance  was  of  benefit 
to  the  infant  himself,  and  was  not  a  contract  for  the  benefit  of  third 
parties.  (2)  The  contract,  so  far  as  appears  on  its  face,  was  the 
usual  and  ordinary  one  for  life  insurance,  on  the  customary  terms,  and 
was  a  fair  and  reasonable  one,  and  free  from  any  fraud,  unfairness, 
or  undue  influence  on  part  of  the  defendant,  unless  the  contrary  is 
to  be  presumed  from  the  fact  that  it  was  made  with  the  infant. 

It  is  not  correct,  however,  to  say  that  the  plaintiff  has  received  no 
benefit  from  the  contract,  or  that  the  defendant  has  parted  with  noth- 
ing of  value  under  it.  True,  the  plaintiff  has  received  no  money,  and 
the  defendant  has  paid  none  to  the  plaintiff ;  but  the  life  of  the  former 
was  insured  for  four  years,  and  if  he  died  during  that  time  the  de- 
fendant would  have  had  to  pay  the  amount  of  the  policy  to  his  estate. 
The  defendant  carried  the  risk  all  that  time,  and  this  is  the  essence 
of  the  contract  of  insurance.  Neither  does  it  follow  that  the  risk  has 
cost  the  defendant  nothing  in  money  because  plaintiff  himself  was 
not  one  of  those  insured  who  died.  The  case  is  therefore  one  of  a 
voidable  or  rescindable  contract  of  an  infant,  partly  performed  on 
both  sides,  the  benefits  of  which  the  infant  has  enjoyed,  but  which 
he  cannot  return,  and  where  there  is  no  charge  of  fraud,  unfairness, 
or  undue  influence  on  the  part  of  the  other  party,  unless,  as  already 
suggested,  it  is  to  be  presumed  from  the  fact  that  the  contract  was 
made  with  an  infant. 

The  question  is,  can  the  plaintiff  recover  back  what  he  has  paid, 
assuming  that  the  contract  was  in  all  respects  fair  and  reasonable? 
The  opinion  heretofore  filed  held  that  he  can.  Without  taking  time 
to  cite  or  discuss  any  of  our  former  decisions,  it  is  sufficient  to  say  that 
none  of  them  commit  this  court  to  such  a  doctrine.  That  such  a 
rule  goes  further  than  is  necessary  for  the  protection  of  the  infant, 
and  would  often  work  gross  injustice  to  those  dealing  with  him,  is,  to 
our  minds,  clear.  Suppose  a  minor  engaged  in  agriculture  should  hire 
a  man  to  work  on  his  farm,  and  pay  him  reasonable  wages  for  his 
services.  According  to  this  rule  the  minor  might  recover  back  what  he 
paid,  although  retaining  and  enjoying  the  fruits  of  the  other  man's 
labor.  Or,  again,  suppose  a  man  engaged  in  mercantile  business,  with 
a  capital  of  $5,000,  should,  from  time  to  time,  buy  and  pay  for  $100,- 
000  worth  of  goods,  in  the  aggregate,  which  he  had  sold,  and  got  his 
pay.  According  to  this  doctrine,  he  could  recover  back  the  $100,000 
which  he  had  paid  to  the  various  parties  from  whom  he  had  bought 
the  goods.    Not  only  would  such  a  rule  work  great  injustice  to  others. 


64  PARTIES 

but  it  would  be  positively  injurious  to  the  infant  himself.  The  policy 
of  the  law  is  to  shield  or  protect  the  infant,  and  not  to  debar  him 
from  the  privilege  of  contracting-. 

But,  if  the  rule  suggested  is  to  obtain,  there  is  no  footing  on  which 
an  adult  can  deal  with  him,  except  for  necessaries.  Nobody  could 
or  would  do  any  business  with  him.  He  could  not  get  his  life  insured. 
He  could  not  insure  his  property  against  fire.  He  could  not  hire 
servants  to  till  his  farm.  He  could  not  improve  or  keep  up  his  land 
or  buildings.  In  short,  however  advantageous  other  contracts  might 
be  to  him,  or  however  much  capital  he  might  have,  he  could  do  ab- 
solutely nothing,  except  to  buy  necessaries,  because  nobody  would  dare 
to  contract  with  him  for  anything  else.  It  cannot  be  that  this  is  the 
law.    Certainly,  it  ought  not  to  be. 

The  following  propositions  are  well  settled,  everywhere,  as  to  the 
rescindable  contracts  of  an  infant,  and  in  that  category  we  include 
all  contracts  except  for  necessaries : 

First.  That,  in  so  far  as  a  contract  is  executory  on  part  of  an  in- 
fant, he  may  always  interpose  his  infancy  as  a  defense  to  an  action 
for  its  enforcement.     He  can  always  use  his  infancy  as  a  shield. 

Second.  If  the  contract  has  been  wholly  or  partly  performed  on 
his  part,  but  is  wholly  executory  on  part  of  the  other  party,  the  minor 
therefore  having  received  no  benefits  from  it,  he  may  recover  back 
what  he  has  paid  or  parted  with. 

Third.  Where  the  contract  has  been  wholly  or  partly  performed  on 
both  sides,  the  infant  may  always  rescind,  and  recover  back  what  he 
has  paid,  upon  restoring  what  he  has  received. 

Fourth.  A  minor,  on  arriving  at  full  age,  may  avoid  a  conveyance 
of  his  real  estate  without  being  required  to  place  the  grantee  in  statu 
quo,  although  a  dififerent  rule  has  sometimes  been  adopted  by  courts 
of  equity  when  the  former  infant  has  applied  to  them  for  aid  in  avoid- 
ing his  deeds.  Whether  this  distinction  between  conveyances  of  real 
property  and  personal  contracts  is  founded  on  a  technical  rule,  or  upon 
considerations  of  policy  growing  out  of  the  difiference  between  real 
and  personal  property,  it  is  not  necessary  here  to  consider. 

Fifth.  Where  the  contract  has  been  wholly  or  partly  performed  on 
both  sides,  the  infant,  if  he  sues  to  recover  back  what  he  has  paid, 
must  always  restore  what  he  has  received,  in  so  far  as  he  still  re- 
tains it  in  specie. 

Sixth.  The  courts  will  always  grant  an  infant  relief  where  the  other 
party  has  been  guilty  of  fraud  or  undue  influence.  As  to  what  would 
constitute  a  sufficient  ground  for  relief  under  this  head,  and  what 
relief  the  courts  would  grant  in  such  cases,  we  will  refer  to  hereafter. 

But  suppose  that  the  contract  is  free  from  all  elements  of  fraud, 
unfairness,  or  overreaching,  and  the  infant  has  enjoyed  the  benefits 
of  it,  but  has  spent  or  disposed  of  what  he  has  received,  or  the  bene- 
fits received  are,  as  in  this  case,  of  such  a  nature  that  they  cannot 


INFANTS    AS   PARTIES    INSURED  G5 

be  restored.    Can  he  recover  back  what  he  has  paid  ?    It  is  well  settled 
in  England  that  he  cannot.     *     *     * 

At  least  a  respectable  minority  of  the  American  decisions  are  in 
full  accord  with  what  we  have  termed  the  "English  rule."  See,  among 
others,  Rilev  v.  Mallory,  33  Conn.  206 ;  Adams  v.  Beall,  67  Md.  53, 
8  Atl.  664,  1  Am.  St.  Rep.  379;  Breed  v.  Judd,  1  Gray  (Mass.)  455. 
But  many — perhaps  a  majority — of  the  American  decisions,  appar- 
ently thinking  that  the  English  rule  does  not  sufificiently  protect  the 
infant,  have  moditied  it;  and  some  of  them  seem  to  have  wholly  re- 
pudiated it,  and  to  hold  that  although  the  contract  was  in  all  respects 
fair  and  reasonable,  and  the  infant  had  enjoyed  the  benefits  of  it, 
yet  if  the  infant  had  spent  or  parted  with  what  he  had  received,  or 
if  the  benefits  of  it  were  of  such  a  nature  that  they  could  not  be  re- 
stored, still  he  might  recover  back  what  he  had  paid.  The  problem 
with  the  courts  seems  to  have  been,  on  the  one  hand,  to  protect  the 
infant  from  the  improvidence  incident  to  his  youth  and  inexperience, 
and  how,  on  the  other  hand,  to  compel  him  to  conform  to  the  prin- 
ciples of  common  honesty.  The  result  is  that  the  American  authorities 
— at  least  the  later  ones — have  fallen  into  such  a  condition  of  con- 
flict and  confusion  that  it  is  difficult  to  draw  from  them  any  definite 
or  uniform  rule.     *     *     * 

Our  conclusion  is  that  where  the  personal  contract  of  an  infant, 
beneficial  to  himself,  has  been  wholly  or  partly  executed  on  both  sides, 
but  the  infant  has  disposed  of  what  he  has  received,  or  the  bene- 
fits recovered  by  him  are  such  that  they  cannot  be  restored,  he  can- 
not recover  back  what  he  has  paid,  if  the  contract  was  a  fair  and 
reasonable  one,  and  free  from  any  fraud  or  bad  faith  on  part  of  the 
other  party,  but  that  the  burden  is  on  the  other  party  to  prove  that 
such  was  the  character  of  the  contract ;  that,  if  the  contract  involved 
the  element  of  actual  fraud  or  bad  faith,  the  infant  may  recover  all 
he  paid  or  parted  with,  but  if  the  contract  involved  no  such  elements, 
and  was  otherwise  reasonable  and  fair,  except  that  what  the  infant 
paid  was  in  excess  of  the  value  of  what  he  received,  his  recovery 
should  be  limited  to  such  excess.  It  seems  to  us  that  this  will  suffi- 
ciently protect  the  infant,  and  at  the  same  time  do  justice  to  the  other 
party.  Of  course,  in  speaking,  of  contracts  beneficial  to  the  infant, 
we  refer  to  those  that  are  deemed  such  in  contemplation  of  law. 

Applying  these  rules  to  the  case  in  hand,  we  add  that  life  insurance 
in  a  solvent  company,  at  the  ordinary  and  usual  rates,  for  an  amount 
reasonably  commensurate  with  the  infant's  estate,  or  his  financial 
ability  to  carry  it.  is  a  provident,  fair,  and  reasonable  contract,  and 
one  which  it  is  entirely  proper  for  an  insurance  company  to  make  with 
him,  assuming  that  it  practices  no  fraud  or  other  unlawful  means  to 
secure  it;  and  if  such  should  appear  to  be  the  character  of  this  con- 
tract the  plaintiff  could  not  recover  the  premiums  which  he  has  paid 
in,  so  far  as  they  were  intended  to  cover  the  current  annual  risk 
assumed  by  the  company  under  its  policy. 
CooLEY  Ins. — 5 


66  PARTIES 

But  it  appears  from  the  face  of  the  policy  that  these  premiums 
covered  something  more  than  this.  The  pohcy  provides  that  after 
payment  of  three  or  more  annual  premiums  the  insured  will  be  en- 
titled to  a  paid-up,  nonparticipating  policy  for  as  many  twentieths  of 
the  original  sum  insured  ($1,000)  as  there  have  been  annual  premiums 
so  paid.  The  complaint  alleges  the  payment  of  four  annual  premiums. 
Hence,  the  plaintiff  was  entitled,  upon  surrender  of  the  original  policy, 
to  a  paid-up,  nonparticipating  policy  for  $200 ;  and  it  therefore  seems 
to  us  that,  having  elected  to  rescind,  he  was  entitled  to  recover  back, 
in  any  event,  the  present  cash  "surrender"  value  of  such  a  policy.  For 
this  reason,  as  well  as  that  the  burden  was  on  the  defendant  to  prove 
the  fair  and  honest  character  of  the  contract,  the  demurrer  to  the 
complaint  was  properly  overruled.  The  result  arrived  at  in  the  former 
opinion  was  therefore  correct,  and  is  adhered  to,  although  on  some- 
what different  grounds.    Order  affirmed^ 


SIMPSON  v.  PRUDENTIAL  INS.  CO.  OF  AMERICA. 

(Supreme  Judicial  Court  of  Massachusetts,  1903.     184   Mass.  348,  68  N.  E. 
673,  63  L.  R.  A.  741,  100  Am.  St.  Rep.  560.) 

Action  by  one  Simpson,  by  her  next  friend,  against  the  Prudential 
Insurance  Company  of  America.  From  a  judgment  for  defendant, 
plaintiff  appeals. 

Morton,  J.*  The  plaintiff  in  this  case  is  a  minor,  and  brings  this 
action,  by  her  next  friend,  to  recover  the  premiums  paid  by  her  on 
a  life  insurance  policy  issued  to  her  by  the  defendant.  The  case  was 
heard  upon  agreed  facts,  and  judgment  was  ordered  for  the  defend- 
ant, and  the  plaintiff  appealed. 

The  policy  was  what  is  termed  a  20-year  endowment  policy,  for 
$500;  and  the  agreed  facts  state  that  there  was  no  fraud  or  undue 
influence  practiced  upon  the  plaintiff  by  the  defendant  or  its  agents, 
and  that  the  contract  was  a  reasonable  and  prudent  one  for  a  person 
in  the  plaintiff's  situation  and  condition  in  life.  Before  the  action 
was  brought,  the  plaintiff,  through  her  attorney,  had  notified  the  de- 
fendant that  she  repudiated  the  policy  and  the  contract  contained  in 
it,  and  demanded  a  return  of  the  sums  she  had  paid  as  premiums.  The 
premiums  paid  amounted  to  $54,  and  it  is  agreed  that  the  expense  to 
the  defendant  of  keeping  the  policy  in  force  was  $28.72.  The  defend- 
ant contends  that  this  should  be  deducted  from,  or  set  off  against,  the 
premiums,  if  the  plaintiff  is  allowed  to  recover  for  them. 

It  is  manifest,  we  think,  that,  however  reasonable  and  prudent  it 

7  The  proper  measure  of  recovery  is  the  reserve  value  of  the  policy — 
not  the  "surrender"  value.  The  surrender  value  is  usually  fixed  by  the  in- 
surer at  an  amount  less  than  the  real  value  of  the  policy. 

8  Part  of  the  opinion  is  omitted. 


INFANTS   AS   PARTIES   INSURED 


G7 


may  be  for  an  infant  to  take  out  a  policy  of  life  insurance,  it  does 
not  come  within  the  class  of  necessaries,  or  within  the  class  of  con- 
tracts which  have  been  held,  as  matter  of  law,  to  be  beneficial  to.  and 
therefore  binding  upon,  an  infant.  It  is  only  when  the  contract 
comes  within  the  class  of  contracts  which,  as  matter  of  law,  are  bind- 
ing upon  an  infant,  that  the  question  of  its  reasonableness  and  pru- 
dence is  material.    Tupper  v.  Cadwell,  12  Mete.  559,  46  Am.  Dec.  704. 

The  defendant  contends  that  this  contract  having  been  executed, 
in  part,  at  least,  the  plaintiff  cannot  recover  without  making  the  de- 
fendant whole  for  the  expense  to  which  it  has  been  subjected.  But 
that  would  be  compelling  the  plaintiff  to  carry  out,  to  that  extent,  a 
contract  which  is  not  binding  on  her.  and  which  she  may  avoid. 
IMorse  v.  Ely,  154  Mass.  458,  28  N.  E.  'z^77 ,  26  Am.  St.  Rep.  263. 

It  is  well  settled  in  this  commonwealth,  whatever  may  be  the  law 
elsewhere,  that,  in  order  to  avoid  a  contract,  an  infant  is  not  obliged 
to  put  the  other  party  in  statu  quo.  Gillis  v.  Goodwin,  180  Mass.  140, 
61  N.  E.  813,  91  Am.  St.  Rep.  265,  and  cases  cited;  White  v.  New 
Bedford  Cot.  Waste  Corp.,  178  Mass.  20,  59  N.  E.  642.  *  *  * 
Judgment  reversed,  and  judgment   for  the  plaintiff.®  , 

9  That  a  contract  of  fire  insurance  is  not  a  contract  for  necessaries,  see 
New  Hampshire  Mut.  Fire  Ins.  Co.  v.  Xoyes,  32  N.  H.  345  (1S55).  Compare 
Monaghan  v.  Insurance  Co.,  53  Mich.  238,  IS  N.  W.  797  (1884).  See.  also, 
O'Kourke  v.  John  Hancock  Mut.  Life  Ins.  Co.,  23  K.  I.  457.  50  Atl.  834,  57 
L.  R.  A.  496,  91  Am.  St.  Rep.  643  (1902).  wherein  it  is  held  that  a  breach  of 
warranty  is  no  defense  to  an  action  on  a  policy  of  insurance  granted  to  an 
infant. 


08  INSURABLE    INTEREST 


INSURABLE  INTEREST 
I.  General  Theory  of  Insurable  Interest* 


CLINTON  V.  NORFOLK  MUT.  FIRE  INS.  CO. 

(Supreme  Judicial  Court  of  Massachusetts,  1900.    176  Mass.  486,  57  N.  E.  995. 
50  L.  R.  A.  833,  79  Am.  St.  Rep.  325.) 

Action  by  one  Clinton  against  the  Norfolk  Mutual  Fire  Insurance 
Company  on  a  poHcy  of  insurance.  There  was  a  judgment  for  de- 
fendant on  agreed  facts,  and  plaintiff  appeals. 

Hammond,  J.^  By  his  deed  to  Forbes  the  plaintiff  conveyed  all  his 
interest  in  the  buildings  insured,  except  an  estate  for  his  life  in  the 
house.  This  life  estate  was  carved  out  of  the  fee  previously  owned 
by  him,  and  was  held  by  the  same  title  as  before  the  conveyance.  He 
sold  his  entire  interest  in  the  barn,  but  only  part  of  his  interest  in 
the  house.  The  only  question  is  whether  the  policy  was  thereby 
avoided  as  to  his  remaining  interest  in  the  house. 

The  defendant  contends  that  the  policy  is  thus  avoided,  and  relies 
upon  the  clauses  which  provide  that  it  shall  be  void  if,  without  the 
consent  of  the  defendant,  "the  situation  or  circumstances  affecting 
the  risk  shall,  by  or  with  the  knowledge,  advice,  agency,  or  consent 
of  the  insured,  be  so  altered  as  to  cause  an  increase  of  such  risks," 
or  "the  said  property  shall  be  sold." 

So  far  as  respects  the  change  of  circumstances  or  situation  nothing 
appears  except  the  deed  to  Forbes.  The  burden  of  proof  to  show  a 
breach  of  condition  of  a  policy  which  has  once  attached  is  on  the 
defendant  (Orrell  v.  Insurance  Co.,  13  Gray,  431);  and,  even  if  the 
clause  has  reference  to  what  are  sometimes  called  the  moral  elements 
of  the  risk,  we  cannot  say,  upon  the  facts  appearing  before  us,  that 
the  risk  was  increased  by  the  sale,  or  that  the  clause  was  intended 
to  embrace  the  changes  made  by  a  sale,  especially  when  there  is  an 
express  provision  in  the  policy  relating  to  that  subject.  Powers  v. 
Insurance  Co.,  136  Mass.  108,  49  Am.  Rep.  20.  Compare,  also,  Oakes 
v.  Insurance  Co.,  131  Mass.  164. 

The  defense  must,  therefore,  rest  upon  the  clause  as  to  alienation. 
Many  of  the  earlier  policies  of  fire  insurance  contained  no  condition 
against  alienation.  Inasmuch,  however,  as  the  contract  of  insurance 
is  one  of  indemnity,  and  not  a  wager,  it  is  manifest  that  where,  be- 

1  For  discussion  'of  principles,  see  Vance  on  Insurance,  §  46.  See,  also, 
Gooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  132-243. 

2  Part  of  the  opinion  is  omitted. 


GENERAL   THEORY   OF   INSURABLE   INTEREST  69 

fore  the  fire,  the  insured  had  parted  with  his  entire  interest  in  the 
property  insured,  he  suffered  no  loss  by  its  destruction,  and  needed 
no  indemnity.  A  total  transfer  of  his  interest,  therefore,  defeated  the 
policy.  But  any  change  short  of  a  complete  transfer  of  his  entire  in- 
terest did  not  have  that  effect.  The  general  rule  was  and  is  that, 
in  the  absence  of  any  provision  to  the  contrary  in  the  policy,  any 
change  in  the  insurable  interest  of  the  insured,  whether  by  a  com- 
plete sale  of  only  a  part  of  the  property  or  a  change  in  the  title  to 
a  part  or  the  whole  of  the  property,  does  not  avoid  the  policy  which 
has  once  attached,  provided  that  at  the  time  of  the  loss  the  insured 
has  an  insurable  interest.  It  is  necessary  that  there  should  be  an 
insurable  interest  at  the  time  of  the  contract  and  at  the  time  of  the 
loss ;  but  if,  at  the  time  of  the  loss,  the  insured  has  parted  with  only 
a  part  of  his  interest,  the  policy  is  valid  as  to  the  part  retained.  Laz- 
arus V.  Insurance  Co.,  5  Pick.  76;  Scanlon  v.  Insurance  Co.,  4  Biss. 
511,  Fed.  Cas.  No.  12,436;  Cowan  v.  Insurance  Co.,  40  Iowa,  551, 
20  Am.  Rep.  583;  Stetson  v.  Insurance  Co.,  4  Alass.  330,  3  Am. 
Dec.  217;  Ayers  v.  Insurance  Co.,  \7  Iowa,  176,  85  Am.  Dec.  553; 
Hitchcock  V.  Insurance  Co.,  26  N.  Y.  68.  And  see,  further,  the  cases 
cited  in  13  Am.  &  Eng.  Enc.  Law  (2d  Ed.)  p.  240,  and  notes.  And 
even  a  total  alienation  does  not  avoid,  but  only  suspends,  the  policy; 
so  that,  if  the  insured  regains  his  interest,  or  any  part  of  it,  and  holds 
it  at  the  time  of  the  loss,  he  may  recover.  May,  Ins,  101 ;  Worth- 
ington  V.  Bearse,  12  Allen,  382,  90  Am.  Dec.  152. 

In  this  state  of  the  law,  insurers  began  to  insert  in  the  policies 
clauses  relating  to  alienation.  These  clauses  vary  in  language,  and 
in  the  examination  of  the  cases  on  this  subject  considerable  care 
must  be  exercised  in  order  to  discriminate  properly  between  those 
cases  applicable  and  those  not  applicable  to  the  clause  which  may  be 
under  consideration. 

The  clause  in  this  policy  is,  "if  the  said  property  be  sold."  Con- 
ditions of  this  kind  are  strictly  construed  against  the  insured,  and 
the  general  rule  is  that  such  a  condition  refers  only  to  an  absolute 
transfer  of  the  entire  interest  of  the  insured,  completely  devesting 
him  of  his  insurable  interest.  Any  sale  or  transfer  short  of  this  is 
not  within  the  scope  of  the  condition.  See,  in  addition  to  the  cases 
above  cited,  Bryan  v.  Insurance  Co.,  145  IMass.  389,  14  N.  E.  454; 
Holbrook  v.  Insurance  Co.,  1  Curt.  193,  Fed.  Cas.  No.  6,589;  Power 
V.  Insurance  Co.,  19  La,  28,  36  Am.  Dec.  665 ;  and  the  cases  collected 
in  13  Am.  &  Eng.  Enc.  Law  (2d  Ed.)  p.  241,  and  notes. 

If  it  be  the  intention  of  the  insurers  that  the  contract  should  be 
avoided  by  any  partial  sale,  or  by  any  change  short  of  an  absolute 
sale,  of  the  entire  interest,  there  is  no  difficulty  in  expressing  that  in- 
tent in  plain  and  explicit  language ;  and  in  many  policies  such  an  in- 
tention is  thus  expressed.  See  Oakes  v.  Insurance  Co.,  ubi  supra, 
where  the  condition  was  that  the  policy  should  be  void  if  the  property 
insured  should  be  sold  or  conveyed  in  whole  or  in  part. 


70  INSURABLE    INTEREST 

As  an  illustration  of  the  dififerent  results  arising  from  the  differ- 
ence in  the  language  of  the  clauses  as  to  alienation,  compare  the  case 
of  Foote  V.  Insurance  Co.,  119  Mass.  259,  and  Bryan  v.  Insurance 
Co.,  ubi  supra.  In  the  former  case,  where  the  condition  was  that  the 
policy  should  be  void  if  any  change  should  take  place  in  the  title  or 
possession  of  the  property  insured,  whether  by  sale,  transfer,  or  con- 
veyance, legal  process,  or  judicial  decree,  it  was  held  that  a  mortgage 
by  way  of  an  absolute  deed,  and  an  unrecorded  instrument  of  de- 
feasance back,  was  a  violation  of  the  condition ;  while  in  the  latter 
case  it  was  held  that  such  a  mortgage  did  not  avoid  the  policy  where 
the  condition  was  that  the  policy  should  be  avoided  "if  the  property 
should  be  sold." 

If,  therefore,  the  house  had  been  the  only  building  named  in  the 
policy,  or  if  the  policy  can  be  regarded  as  containing  two  separate 
and  independent  contracts,  one  applicable  to  the  house  alone  and  one 
applicable  to  the  barn  alone,  there  was  no  breach  of  the  condition  of 
alienation  so  far  as  respects  the  house,  and  the  policy  was  valid  as 
to  the  Hfe  estate  of  the  plaintiff  therein  at  the  time  of  the  loss.  Clark 
V.  Insurance  Co.,  6  Cush.  342,  53  Am.  Dec.  44. 

But  it  is  contended  by  the  defendant  that  the  contract  was  entire, 
and  that,  being  void  as  to  the  barn,  it  is  void  as  to  the  house.  And 
the  counsel  for  the  defendant  argues  that,  in  so  far  as  the  case  of 
Clark  V.  Insurance  Co.,  ubi  supra,  seems  to  support  the  doctrine  that, 
where  the  different  articles  are  separately  valued  in  a  policy,  it  is  to 
be  regarded  as  containing  a  separate,  distinct,  and  independent  con- 
tract as  to  each  such  article,  as  though  each  was  insured  in  a  separate 
policy,  it  is  inconsistent  with  Brown  v.  Insurance  Co.,  11  Cush.  280, 
and  Thomas  v.  Assurance  Co.,  162  Mass.  29,  Z7  N.  E.  672,  44  Am. 
St.  Rep.  323,  and  other  similar  cases  decided  here  and  elsewhere. 
We  have  not  found  it  necessary,  however,  to  consider  whether  or  not 
the  contract  in  this  case  is  an  entire  contract,  since  we  are  of  the 
opinion  that,  even  if  it  be  entire,  there  has  been  no  breach  of  the 
condition.  If  the  contract  was  entire,  then  the  house  and  barn  were 
insured  as  one  entire  risk,  and  the  same  considerations  which  lead 
to  the  conclusion  that,  where  the  house  is  the  only  building  insured, 
there  is  no  sale,  within  the  condition  named  in  the  policy,  when  the 
insured  retains  an  insurable  interest  in  the  house,  leads  also  to  the 
conclusion  that,  where  the  house  and  barn  are  insured  as  one  entire 
risk,  there  is  no  sale  of  the  property  within  the  condition  when  the 
insured  retains  an  insurable  interest  in  either  building.  In  either  case 
there  has  not  been  an  absolute  sale  of  the  entire  interest  in  the  whole 
property,  and  consequently  no  breach  of  the  condition.  And  the  rea- 
son the  plaintiff  cannot  recover  for  the  destruction  of  the  barn  is 
not  because  there  has  been  a  breach  of  the  condition  as  to  alienation, 
and  the  policy  has,  therefore,  become  void,  but  because  he  had  no  in- 
surable interest  in  the  barn  when  it  was  burned,  and  has.  therefore, 
suffered  no  loss  by  its  destruction.     The  result  would  be  the  same 


INSURABLE    INTEREST   IN   PROPERTY — WHAT   CONSTITUTES  71 

even  if  there  was  no  condition  whatever  as  to  ahenation,  or  if  the 
plaintiff  had  lost  his  interest  in  some  other  way  not  covered  by  the 
condition.     *     *     *     Judgment  for  plaintiff.* 


II.  Insurable  Interest  in  Property — What  Constitutes  * 


CARPENTER  v.  GERMAN-AMERICAN  INS.  CO. 

(Court  of  Appeals  of  New  York,  1892.     135  N.  Y.  298,  31  N.  E.  1015.) 

Action  by  George  C.  Carpenter  and  another  against  the  German- 
American  Insurance  Company.  A  judgment  for  plaintiff's  was  affirmed 
by  the  General  Term  (61  Hun,  624,  17  N.  Y.  Supp.  603,  mem.),  and 
defendant  appeals. 

Andrews,  j.s  *  *  *  fhe  remaining  question  relates  to  the 
claim  that  the  plaintiff,  at  the  time  of  the  insurance  and  of  the  fire, 
had  no  insurable  interest  in  the  building  wdiich  was  in  part  the  sub- 
ject of  the  insurance.  It  is  doubtless  true  that  the  State  Bank  of 
Elizabeth,  the  vendor  in  the  contract  of  sale  to  the  plaintiffs,  had  no 
legal  title  to  the  property  embraced  therein.  It  was,  however,  the  ben- 
eficial owner.  The  bank  owned  the  mortgage  and  bid  off  the  property 
on  the  foreclosure  in  1877,  but  its  agent  at  the  sale,  under  advice  of 
its  attorney,  directed  the  conveyance  to  be  made  to  'Sir.  Kean,  the 
president  of  the  bank,  because  of  the  statute  of  Pennsylvania  which 
prohibited  any  foreign  corporation  from  acquiring  and  holding  any 
real  estate  within  the  commonwealth,  "directly  in  the  corporate  name, 
or  by  or  through  any  trustee  or  other  devise  whatever,  unless  specially 
authorized  to  hold  such  property  by  the  laws  of  the  commonwealth." 
Purd.  Dig.  (Pa.)  §  56,  p.  292.  Mr.  Kean  paid  nothing  for  the  prop- 
erty, and  acknowledged  that  it  belonged  to  the  bank,  and  never  made 
any  claim  to  it  w'hatever.  He  knew  of  the  negotiation  between  the 
bank  and  Carpenter  for  the  sale  and  purchase  of  the  property,  and 
advised  and  consented  to  the  contract  by  the  bank,  and  was  fully  ac- 
quainted with  the  fact  that  Carpenter  was  paying  the  purchase  money 
of  the  land,  in  reliance,  upon  the  ownership  of  the  property  by  the 
bank.  The  bank.  Carpenter,  and  Kean  acted  in  good  faith,  suppos- 
ing that  the  bank  held  the  legal  title  to  the  land.  The  officers  of  the 
bank  had  forgotten  that  the  title  had  been  taken  in  Kean's  name,  and 

3  Duratiou  of  interest,  see  post,  p.  77.     As  to  divisibility  of  contract,  see 
ante,  p.  3(5. 

*  For  discussion  of  pviiK  iples,   see  Vance  on  Insurance,   §  47. 
6  Part  of  the  opinion  is  omitted. 


72  INSURABLE    INTEREST 

for  this  reason  the  contract  with  Carpenter  was  made  in  the  name  of 
the  corporation. 

We  deem  it  unnecessary  to  go  into  the  abstruse  questions  which 
have  been  argued  at  the  bar  as  to  the  legal  and  equitable  right  to 
the  land,  as  between  the  bank  and  Kean,  growing  out  of  the  convey- 
ance to  the  latter  of  the  legal  title  on  the  foreclosure  sale.    Assuming 
(but  without  deciding)  that  the  bank  could  not,  in  view  of  the  Penn- 
sylvania statute,   have  established  a  trust   in   its   favor,  enforceable 
against  Kean,  or  compelled  him  to  convey  the  legal  title  to  the  cor- 
poration, yet  it  is,  we  think,  very  plain  that,  as  between  Carpenter  on 
the  one  side,  and  the  bank  and  Kean  on  the  other,  Carpenter,  on  the 
performance  of  his  contract,  could  have  maintained  a  suit  in  equity 
to  compel  the  bank  and  Kean  to  convey  the  land.     Kean  would  be 
bound  by  the  plainest  principles  of  equity  and  justice  to  make  the 
contract  good,  which  was  entered  into  with  his  advice,  and  upon  which 
Carpenter  had   advanced   his   money.     It  would   be   no   answer  that 
Kean  did  not  act  mala  fide,  but  supposed  that  the  legal  title  was  in 
the  bank.     He  stood  by  and  encouraged  the  sale,  and  knew  of  the 
payment  of  the  purchase  money  by  Carpenter  in  reliance  upon  the 
right  of  the  bank  to  sell  the  property.     Storrs  v.  Barker,  6  Johns.  Ch. 
166,  10  Am.  Dec.  316;    Continental  Nat.  Bank  v.  National  Bank  of 
Commonwealth,   50  N.   Y.   576;    Thompson  v.   Simpson,    128   N.   Y. 
270,  28  N.  E.  627.    His  mistake  prejudiced  no  real  right  or  equity  in 
the  land.     He  asserted  none  therein,  and  now  acknowledges  that  the 
bank  is  entitled  to  the  benefit  of  the  policy.    The  principle  of  equitable 
estoppel  applies  with  persuasive  force  against  Kean,  preventing  him 
from  asserting,  as  against  Carpenter,  any  right  in  the  land;    and  a 
court  of  equity  would  require  him  to  convey,  so  that  the  just  expecta- 
tions of  Carpenter  should  not  be  disappointed.     Carpenter  had,  there- 
fore, an  insurable  interest  in  the  property. 

The  questions  decided  dispose  of  all  the  material  points  in  the  ap- 
peal. The  result  is  that  the  judgment  should  be  affirmed,  with  costs. 
All  concur. 


BASSETT  V.   FARMERS'   &  MERCHANTS'   INS.   CO. 

(Supreme  Court  of  Nebraska,  1909.     85  Neb.  85.  122  N.  W.  703.) 

Action  by  John  W.  Bassett  against  the  Farmers'  &  Merchants'  In- 
surance Company.     Judgment  for  plaintiff,  and  defendant  appeals. 

Root,  J.«  In  1902  John  W.  Bassett,  plaintiff  herein,  purchased  a 
farm  in  Otoe  county,  and  procured  the  conveyance  therefor  to  be  made 
to  his  wife.  In  1904  defendant  insured  plaintiff  for  five  years  against 
loss  by  fire  of  the  dwelling  house  on  said  farm.  In  1906  the  house 
was  totally  destroyed  by  fire.  Defendant  denied  liability  upon  its 
policy,  and  returned  the  premium  received  by  it  from  plaintiff,  which 

6  Part  of  the  opinion  is  omitted. 


INSURABLE    INTEREST   IN    PROPERTY — WHAT   CONSTITUTES  73 

he  retained  some  months,  and  then  sent  back  to  defendant.     Defend- 
ant tenders  plaintiff  the  amount  of  said  premium. 

The  most  important  question  raised  by  the  defense  is  that  under  the 
facts  plaintiff  did  not  have  an  insurable  interest  in  the  property  de- 
.stroyed,  and  for  that  reason  cannot  recover.  Without  an  insurable 
interest,  plaintiff  ought  not  to  prevail.  Stanisics  v.  Hartford  Fire 
Ins.  Co.,  83  Xeb.  768,  120  N.  W.  435.  At  the  time  the  policy  was 
issued  excepting  only  her  homestead,  a  married  woman  in  Nebraska 
could  dispose  of  her  real  estate  without  her  husband's  assent,  and  by 
her  sole  deed  convey  title  thereto  freed  from  his  interest  inchoate  or 
otherwise  therein.  The  farm  under  consideration  was  not  a  home- 
stead. Not  only  may  the  wife  thus  convey  her  real  estate,  but  dur- 
ing, her  lifetime  the  husband  has  no  right  to  its  possession  or  control 
nor  to  any  part  of  the  rents  and  profits  issuing  therefrom.  Cases  may 
be  cited  to  sustain  the  proposition  that  the  husband's  estate  by  the 
curtesy  initiate  is  an  insurable  interest ;  but  an  examination  of  those 
cases  will  disclose  that  they  are  based  upon  laws  giving  the  husband 
more  than  a  mere  expectancy  in  the  wife's  land.  In  jurisdictions 
where  the  lawmaking  power  has  completely  emancipated  a  married 
woman's  property  from  the  control  of  her  husband,  the  possibility 
that  he  will  receive  a  benefit  from  the  real  estate  of  which  she  may 
die  seised  is  not  considered  an  insurable  interest  during  her  lifetime. 
Clark  V.  Insurance  Co.,  81  Me.  373,  17  Atl.  303 ;  Traders'  Insurance 
Co.  V.  Newman,  120  Ind.  554,  22  N.  E.  428;  Planters'  Ins.  Co.  v. 
Loyd,  71  Ark.  292,  75  S.  W.  725. 

Plaintiff  argues  that,  if  the  holder  of  the  property  insured  will 
suffer  a  loss  by  its  destruction,  he  has  an  insurable  interest  therein. 
An  examination  of  the  cases  cited  upon  that  point  will  disclose  that  the 
assured  in  each  instance  had  some  substantial  interest  in  the  sub- 
ject insured,  an  interest  that  would  be  recognized  and  protected  by 
the  courts.  If  plaintiff  were  enjoying  the  possession  of  a  house  rent 
free  without  any  contract  with  the  owner  and  under  such  circumstanc- 
es that  the  latter  might  dispossess  the  former  any  time,  it  would  hardly 
be  contended  that  he  had  an  insurable  interest  in  the  dwelling.  So 
far  as  the  proof  goes,  plaintiff  holds  possession  of  the  farm  by  suf- 
ferance of  his  wife,  and  not  by  force  of  any  lawful  or  equitable  right. 
Counsel  argue  that  Mrs.  Bassett  has  only  a  dry,  naked,  legal  title  to 
the  farm,  and  that  the  beneficial  one  is  in  plaintiff,  but  tlie  difficulty 
is  that  the  proof  does  not  sustain  that  assumption.  Mrs.  Bassett  did 
not  testify,  nor  has  plaintiff  stated,  that  there  was  any  arrangement 
between  himself  and  wife,  oral  or  otherwise,  by  which  he  was  to  have 
a  life  estate  in  the  farm.  Nor  is  there  any  proof  that  the  deed  to 
Mrs.  Bassett  does  not  convey  the  title  in  just  such  form  as  plaintiff 
desired. 

In  Redfield  v.  Holland  Purchase  Ins.  Co.,  56  N.  Y.  354,  15  Am. 
Rep.  424,  cited  as  in  point,  the  wife  had  agreed  orally  that  her  hus- 
band should  have  the  use  during  his  natural  life  of  the  property  con- 


74  INSURABLE    INTEREST 

veyed  to  her  at  his  instance.  He  was  in  possession  of  the  land,  and 
the  court  held  that  there  had  been  complete  performance  by  the  hus- 
band of  the  oral  agreement  so  as  to  take  it  out  of  the  statute  of  frauds, 
and  that  he  had  an  equitable  title  to  the  real  estate.  But  in  the  case 
at  bar  the  proof  merely  discloses  that  plaintiff  purchased  the  land  and 
directed  the  vendor  to  convey  direct  to  his  wife,  and,  in  conformity 
with  his  instructions,  she  received  a  warranty  deed  therefor.  He  tes- 
tified that  he  desired  her  to  have  the  land  without  administration  if 
she  survived  him,  and,  should  she  predecease  him,  he  would  inherit 
from  her.  It  may  be  that  the  facts  will  justify  a  court  finding  that 
there  was  an  arrangement  between  the  husband  and  wife  entered  into 
before  the  deed  was  made  to  her  that  he  could  have  the  use  of  the 
land  during  his  lifetime,  but  there  is  no  evidence  in  the  record  of  those 
facts.  Upon  the  proof  plaintiff  is  in  the  same  situation  as  though  he 
had  taken  possession  of  his  wife's  separate  property  and  leased  it  for 
his  own  benefit.  The  wife  could  oust  him  any  time  she  saw  fit.  In 
the  state  of  the  record  there  is  a  failure  of  proof  upon  a  vital  fact  in 
issue.  Pope  v.  Glenns  Falls  Ins.  Co.,  136  Ala.  670,  34  South.  29. 
*     *     *     Judement  reversed. 


RIGGS  V.  CO:\IMERCIAL  MUT.  INS.  CO. 

(Court  of  Appeals  of  New  York,  1890.     125  N.  Y.  7,  25  N.  E.  1058,  10  L.  R. 

A.  684,  21  Am.  St.  Rep.  716.) 

Action  by  John  S.  Riggs  against  the  Commercial  Mutual  Insurance 
Company.  Plaintiff  sues  as  assignee  of  a  policy  of  insurance  issued 
by  the  defendant  to  J.  L.  Tobias  on  the  steamer  Falcon.  Tobias  was 
at  the  time  of  issuance  of  the  policy  a  stockholder  in  the  Merchants' 
Steamship  Company,  a  corporation  which  owned  the  vessel  insured. 
A  judgment  for  plaintiff  being  affirmed  by  the  superior  court  of  New 
York  City,  general  term  (5  N.  Y.  Supp.  183),  the  defendant  appeals. 

Andrews,  J.^  *  *  *  The  question  whether  a  stockholder  in  a 
corporation,  as  such,  has  an  insurable  interest  in  the  corporate  prop- 
erty, which  he  may  protect  by  an  insurance  of  specific,  tangible  prop- 
erty of  the  corporation,  is  the  question  now  presented.  The  policy 
does  not  disclose  the  nature  of  the  interest  of  Tobias  in  the  vessel 
insured;  but  this  was  not  necessary,  unless  required  by  some  condi- 
tion in  the  policy.  Lawrence  v.  Van  Home,  1  Caines,  276 ;  Tyler  v. 
Insurance  Co.,  12  Wend.  507.  The  policy,  if  otherwise  valid,  attached 
to  whatever  insurable  interest  he  had,  whether  as  owner  or  otherwise. 
What  constitutes  an  insurable  interest  has  been  the  subject  of  much 
discussion  in  the  cases,  and  is  often  a  question  of  great  difficulty.  It 
is  quite  apparent  that  the  tendency  of  decisions  in  recent  times  is  in 
the  direction  of  a  more  liberal  doctrine  upon  this  subject  than  formerly 
prevailed.     May,  Ins.  §  76. 

7  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


INSURABLE    INTEREST   IN    PROPERTY — WHAT    CONSTITUTES  75 

Contracts  of  insurance  where  the  insured  had  no  interest  were  per- 
mitted at  common  law  (Craufurd  v.  Hunter,  8  Term  R.  13)  ;  but  the 
manifest  evils  attending  such  contracts,  and  the  temptation  which  they 
afforded  for  fraud  and  crime,  led  to  the  enactment  in  England  of  the 
statute  19  Geo.  II.  c.  ZT ,  prohibiting  wager  policies,  and  this  was  fol- 
lowed by  the  enactment  in  this  state  of  a  similar  statute  ( 1  Rev.  St. 
[1st  Ed.]  p.  662)  prohibiting  wagers.  But  to  prevent  the  application 
of  the  statute  to  cases  of  insurance  by  way  of  security  and  indemnity 
it  was  provided  that  it  should  "not  be  extended  so  as  to  prohibit  or 
in  any  way  affect  any  insurances  made  in  good  faith  for  the  security 
or  indemnity  of  the  party  insured,  and  which  are  not  otherwise  pro- 
hibited by  law."  Section  10.  It  w'ould  seem,  therefore,  that  whenever 
there  is  a  real  interest  to  protect,  and  a  person  is  so  situated  with  re- 
spect to  the  subject  of  insurance  that  its  destruction  would  or  might 
reasonably  be  expected  to  impair  the  value  of  that  interest,  an  in- 
surance on  such  interest  would  not  be  a  wager  within  the  statute, 
w'hether  the  interest  was  an  ownership  in  or  a  right  to  the  possession 
of  the  property,  or  simply  an  advantage  of  a  pecuniary  character, 
having  a  legal  basis,  but  dependent  upon  the  continued  existence  of 
the  subject.  It  is  well  settled  that  a  mere  hope  or  expectation,  which 
may  be  frustrated  by  the  happening  of  some  event,  is  not  an  insurable 
interest. 

The  stockholder  in  a  corporation  has  no  legal  title  to  the  corporate 
assets  or  property,  nor  any  equitable  title  which  he  can  convert  into 
a  legal  title.  The  corporation  itself  is  the  legal  owner,  and  can  deal 
with  corporate  property  as  owner,  subject  only  to  the  restrictions  of 
the  charter.  Plimpton  v.  Bigelow,  93  N.  Y.  593 ;  Van  Allen  v.  As- 
sessors, 3  Wall,  zilli,  18  L.  Ed.  229.  But  stockholders  in  a  corpora- 
tion have  equitable  rights  of  a  pecuniary  nature,  growing  out  of  their 
situation  as  stockholders,  which  may  be  prejudiced  by  the  destruction  of 
the  corporate  property.  The  object  of  business  corporations  is  to  make 
profits  through  the  exercise  of  the  corporate  franchises,  and  gains  so 
made  are  distributable  among  the  stockholders  according  to  their  respec- 
tive interests,  although  the  time  of  the  division  is  ordinarily  in  the  dis- 
cretion of  the  managing  body.  It  is  this  right  to  share  in  the  profits 
which  constitutes  the  inducement  to  become  stockholders.  So,  also, 
on  the  winding  up  of  the  corporation,  the  assets,  after  payment  of 
debts,  are  divisible  among  the  stockholders.  It  is  very  plain  that  both 
these  rights  of  stockholders — viz.,  the  right  to  dividends  and  the  right 
to  share  in'  the  final  distribution  of  the  corporate  property — may  be 
prejudiced  by  its  destruction.  In  this  case  the  ships  were  the  means 
by  which  profits  were  to  be  earned,  and  their  loss  would)  naturally, 
in  the  ordinary  course  of  things,  diminish  the  capacity  of  the  corpora- 
tion to  pay  dividends,  and  consequently  impair  the  value  of  the  stock. 
The  same  would  be  true  in  other  cases  which  might  be  mentioned ;  as. 
for  example,  where  buildings  producing  rent,  owned  by  a  corporation, 
should  be  burned.     It  is  not  necessary,  to  constitute  an  insurable  in- 


76  INSURABLE   INTEREST 

terest,  that  the  interest  is  such  that  the  event  insured  against  would 
necessarily  subject  the  insured  to  loss.  It  is  sufificient  that  it  might 
do  so,  and  that  pecuniary  injury  would  be  the  natural  consequence. 
Cone  V.  Insurance  Co.,  60  N.  Y.  619. 

The  question  now  before  us  was  considered  by  the  supreme  court 
of  Iowa  in  the  case  of  Warren  v.  Insurance  Co.,  31  Iowa,  464,  7  Am. 
Rep.  160.  The  court,  in  a  careful  opinion,  reached  the  conclusion  that 
a  stockholder  in  a  corporation  had  an  insurable  interest  in  the  corpo- 
rate property.  In  Philips  v.  Insurance  Co.,  20  Ohio,  174,  there  is  an 
adverse  dictum,  but  the  decision  went  on  another  ground.  In  Wilson 
V.  Jones,  L.  R.  2  Exch.  139,  the  action  was  upon  a  policy  in  favor 
of  the  plaintiff,  a  shareholder  in  the  Atlantic  Telegraph  Company,  a 
company  organized  to  lay  the  Atlantic  cable.  The  court  construed 
the  contract  as  an  insurance  of  the  plaintiff  in  respect  to  the  adventure 
undertaken  by  the  company  to  lay  the  cable,  and  it  was  held  that  his 
interest  as  shareholder  was  an  insurable  interest,  and  likened  it  to 
an  insurance  on  profits.  See,  also,  Paterson  v.  Harres,  1  Best  &  S. 
336.  It  is  difficult  to  perceive  any  good  reason  why,  if  a  stockholder 
could  be  insured  on  his  shares  in  a  corporation  against  a  loss  happen- 
ing in  the  prosecution  of  a  corporate  enterprise,  he  could  not  insure 
specifically  the  corporate  property  itself  embraced  in  the  adventure,, 
and  prove  his  interest  by  showing  that  he  was  a  shareholder. 

The  question  here  is,  did  the  plaintiff  have  an  insurable  interest 
covered  by  the  policy?  The  amount  of  damages  is  not  in  question. 
Except  that  the  parties  have  taken  that  question  out  of  the  contro- 
versy, the  extent  of  the  loss  would  be  a  question  of  fact  to  be  ascer- 
tained by  proof,  and  the  recovery  up  to  the  amount  insured  would  be 
measured  by  the  actual  loss.  We  are  of  opinion  that  the  view  that 
a  stockholder  in  a  corporation  may  insure  specific  corporate  property 
by  reason  of  his  situation  as  stockholder,  stands  upon  the  better  rea- 
son, and  also  that  it  is  in  consonance  with  the  current  of  authority 
defining  insurable  interests  in  our  courts.  The  cases  of  Herkimer  v. 
Rice,  27  N.  Y.  163,  Rohrback  v.  Insurance  Co.,  62  N.  Y.  47,  20  Am. 
Rep.  451,  and  National  Filtering  Oil  Co.  v.  Citizens'  Ins.  Co.,  106 
N.  Y.  535,  13  N.  E.  2)Z7,  60  Am.  Rep.  473,  sustained  policies  upon 
interests  quite  as  remote  as  the  interest  now  in  question.  It  would 
be  useless  reiteration  to  restate  the  particular  facts  and  grounds  of 
the  decisions  in  these  cases.  It  is  sufficient  to  refer  to  them,  and  to 
say  in  conclusion  that  it  seems  to  us,  both  upon  authority  and  reason, 
that  the  insurance  now  in  question  is  not  a  wager  policy,  but  is  a  fair 
and  reasonable  contract  of  indemnity,  founded  upon  a  real  interest, 
though  not  amounting  to  an  estate,  legal  or  equitable,  in  the  property 
insured. 

The  judgment  should  therefore  be  affirmed.     All  concur.^ 

s  Accord:  Warren  v.  Davenport  Fire  Ins.  Co.,  31  Iowa,  464,  7  Am.  Rep. 
160  (ISTl);  Blake  Opera  House  Co.  v.  Home  Ins.  Co.,  73  ^Yls.  667,  41  N.  W.. 
968  (1889) ;  ^Etna  Ins.  Co.  v.  Kennedy,  161  Ala.  600,  50  South.  73,  135  Am.. 
St.  Rep.  160  (1909). 


DURATION    OF   INTEREST  77 


III.  Duration  of  Interest* 


DICKERMAN  v.  VERMONT  MUT.  EIRE  INS.  CO. 

(Supreme  Court  of  Vermont,   1894.     67  Vt.  99,   30  Atl.   808.) 

Assumpsit  by  Lewis  Dickerman  and  another  against  the  Vermont 
Mutual  Fire  Insurance  Company  and  against  the  Union  Mutual  Fire 
Insurance  Company  to  recover  on  a  policy  of  fire  insurance.  Defend- 
ants demurred  to  plaintiffs'  declarations.  Demurrers  overruled,  and 
defendants  except. 

RowELL,  J.  The  questions  in  these  cases  being  the  same,  they  were 
heard  together.  The  statement  in  the  counts  demurred!  to,  that  the 
policies  and  applications  are  referred  to  and  made  a  part  thereof,  does 
not,  as  is  conceded,  make  those  instruments  a  part  of  the  counts.  It 
is  essential  to  the  sufficiency  of  the  counts  that  they  should  allege  an 
insurable  interest  in  the  plaintiffs  at  the  time  the  policies  were  issued, 
and  also  at  the  time  of  loss. 

In  respect  to  the  time  of  issuing,  the  policies,  it  is  alleged  that  the 
defendants  promised  the  plaintiffs  to  pay  them  certain  sums  of  money 
named  if  their  buildings,  situate,  etc.,  were  destroyed  by  fire  between 
certain  dates.  It  is  doubtful  whether  this  is  a  sufficiently  definite  and 
positive  allegation  of  insurable  interest.  The  authorities  differ  about 
it,  and  it  is  not  necessary  to  decide  the  question ;  for  the  counts  are 
bad  for  not  alleging  such  interest  at  the  time  of  loss,  concerning  which 
they  contain  no  allegation  whatever. 

It  is  also  doubtful,  to  say  the  least,  whether  it  appears  from  either 
count  that  the  money  was  due  and  payable  when  the  suits  were  com- 
menced. It  is  true  that  the  promises  as  laid  are  to  pay  if  the  build- 
ings were  destroyed,  but  it  is  not  alleged  that  payment  was  to  be  made 
on  the  happening  of  that  event,  nor  on  notice  of  its  happening,  nor 
within  a  reasonable  or  other  time  thereafter,  and  one  of  the  counts 
alleges  no  notices.  But  it  is  unnecessary  to  consider  this  point  further, 
as  the  pleader  can  easily  obviate  this  objection  when  he  repleads. 

Judgment  reversed,  demurrers  sustained,  the  counts  adjudged  in- 
sufficient, and  causes  remanded.^'' 

«  For  discussion  of  principles,  see  Vance  on  Insurance,  §  48. 

10  As  to  effect  of  change  or  termination  of  interest,  see,  also,  Quarles  v. 
Clayton,  ante,  p.  10,  New  v.  German  Ins.  Co.,  ante,  p.  15,  and  Clinton  v.  Nor- 
folk Mutual  Fire  Ins.  Co.,  ante,  p.  68. 


78  INSURABLE   INTEREST 


IV.  Insurable  Interest  in  Lives  ** 


RUPP  V.  WESTERN  LIFE  INDEMNITY  CO. 

(Court  of  Appeals  of  Kentucky,  1910.    138  Ky.  IS.  127  S.  W.  490,  29  "L.  R.  A. 

[N.    S.]    675.) 

NuNN,  J.  Appellant,  Clarence  Rupp,  brought  this  suit  against  ap- 
pellee, Western  Life  Indemnity  Company,  on  two  policies  of  insur- 
ance alleged  to  have  been  issued  upon  the  life  of  his  uncle,  Geo.  Mc- 
Cormack,  appellant  being  named  in  both  policies  as  the  beneficiary. 
The  petition  is  in  two  paragraphs,  in  each  of  which  it  is  sought  to 
recover  $1,000,  the  amount  of  each  of  the  policies,  and  is  in  the  form 
usually  employed  in  bringing  such  actions,  except  it  is  alleged  that, 
"by  the  directions  and  under  the  instructions  of  the  assured,  Geo. 
McCormack,  the  defendant  issued  the  policies  payable  to  this  plain- 
tiff, and  this  without  this  plaintiff's  instance,  request  or  knowledge." 
Appellee's  answer  was  composed  of  five  paragraphs ;  to  some  of 
\vhich  a  demurrer  was  filed,  but  never  acted  upon  as  to  the  answer, 
but  was  carried  back  to  and  sustained  as  to  the  petition.  Plaintiff 
declined  to  amend  his  petition,  and  the  court  dismissed  it  upon  the 
ground  that  appellant,  a  nephew  of  McCormack,  had  no  insurable  in- 
terest in  his  uncle's  life;  that  such  a  contract  partook  of  the  nature 
of  a  wager,  and  was  void  as  being  against  public  policy.  And  this 
is  the  only  question  necessary  or  proper  to  be  considered  upon  this  ap- 
peal. 

This  court  has  held  in  several  cases  that  a  person  could  not  take 
out  an  insurance  policy  on  the  life  of  another,  pay  the  premiums,  and 
become  himself  the  beneficiary,  unless  he  had  an  insurable  interest  in 
the  life  of  the  person  insured,  for  the  reason  that  such  would  be  a 
wagering  contract,  and  violative  of  public  policy.  The  court  did  not 
hold  such  contract  of  insurance  void,  but  only  held  that  the  person 
who  had  no  insurable  interest  and  obtained  the  policy,  and  paid  the 
premiums  thereon,  could  not  collect  it.  This,  however,  is  not  the 
question  before  us.  The  point  is :  Has  a  person  a  right  to  obtain  a 
policy,  pay  the  premiums,  and  name  any  person  he  wishes  as  benefi- 
ciary? This  is  the  first  time  this  question  has  been  brought  directly 
before  this  court.  Appellee's  counsel  contend  that  such  a  policy  can- 
not be  enforced,  even  though  the  beneficiary  named  in  the  policy  had 
nothing  to  do  w^ith  procuring  it,  and  was  ignorant  of  its  issual,  and 
cite  the  following  Kentucky  cases,  which  they  claim  support  their  po- 
sition :  Caudell  v.  Woodward,  96  Ky.  646,  29'S.  W.  614,  Leaf  v.  Leaf, 

11  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  49-52.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  244-329. 


INSURABLE    INTEREST   IN    LIVES  79 

92  Ky.  166,  17  S.  W.  354,  854,  13  Ky.  Law  Rep.  486.  Embry's  Adm'r 
V.  Harris,  107  Ky.  65,  52  S.  W.  958,  21  Ky.  Law  Rep.  714,  Griffin's 
Adm'r  v.  Equitable  Assurance  Society,  119  Ky.  856,  84  S.  W.  1164, 
27  Ky.  Law  Rep.  313,  and  Schlamp  v.  Berner's  Adm'r,  51  S.  W.  312, 
21  Ky.  Law  Rep.  324. 

The  question  before  us  was  not  in  issue  in  any  of  the  cases  cited, 
and  was  not  considered,  except  by  a  slight  reference  in  the  first-styled 
case.  The  opinions  in  the  first  two  cases  referred  to  construe  con- 
tracts of  insurance  issued  by  what  are  known  as  "assessment  or  be- 
nevolent associations,"  and  the  court  decided  them  upon  the  construc- 
tion of  the  organic  law  governing  these  associations.  In  the  case  of 
Embry's  Adm'r  v.  Harris,  supra,  Harris  as  the  surety  of  Embry  to 
a  bank  for  nearly  $4,000,  obtained  a  policy  on  the  life  of  Embry,  pay- 
able to  his  (Embry's)  estate  for  the  sum  of  $5,000,  and  the  policy 
was  placed  in  the  hands  of  Harris  to  indemnify  him  against  loss  as 
such  surety.  The  court  upheld  that  contract.  In  the  case  of  Schlamp. 
etc.,  V.  Berner's  Adm'r,  supra,  ]\Iary  Berner  took  out  a  policy  on  her 
life  which  was  made  payable  to  her  administrator.  She  afterwards  as- 
signed the  policy  to  her  cousin.  Barbara  Schlamp.  The  court  held 
that  Barbara  Schlamp  had  no  insurable  interest  in  the  life  of  Mary 
Berner.  and  took  no  interest  in  the  policy  by  reason  of  the  assign- 
ment of  the  policy  to  her.  It  will  be  observed  that  these  opinions  do 
not  touch  the  question  before  us.  except  the  Caudell  Case,  which  we 
will  refer  to  hereafter. 

The  exact  question  before  us  was  thoroughly  considered  in  the  case 
of  Hess'  Adm'r  v.  Segenfelter,  etc..  127  Ky.  348.  105  S.  W.  476,  32 
Ky.  Law  Rep.  225,  14  L.  R.  A.  (N.  S.)  1172,  128  Am.  St.  Rep.  343. 
The  policy  in  that  case  was  issued  by  a  benevolent  association,  and 
the  opinion  was  based  upon  and  controlled  by  sections  678  and  680 
of  the  Kentucky  Statutes  (Russell's  St.  §§  4399,  4401) ;  but  the  ques- 
tion at  bar  was  thoroughly  considered,  and  the  following  conclusion 
announced:  "All  the  courts  of  last  resort,  with  possibly  one  excep- 
tion, and  the  text-writers  on  insurance  generally,  are  agreed  that  a 
person  may  take  out  insurance  on  his  own  life  and  designate  whom 
he  pleases  as  the  beneficiary.  This  doctrine  is  based  upon  the  sound 
and  sensible  theory  that  it  is  not  reasonable  to  suppose  that  a  person 
will  insure  his  own  life  for  the  purposes  of  speculation,  or  be  tempted 
to  take  his  own  life,  in  order  to  secure  the  payment  of  money  to  an- 
other, or  designate  as  the  beneficiary  a  person  interested  in  the  de- 
struction and  not  in  the  continuance  of  his  own  life.  \'ance  on  In- 
surance, §  49 ;  Heinlein  v.  Imperial  Insurance  Co.,  101  Mich.  250,  59 
N.  W.  615,  25  L.  R.  A.  627,  45  Am.  St.  Rep.  409:  Morrell  v.  Trenton 
Mutual  Life  Ins.  Co.,  10  Cush.  (Mass.)  282,  57  Am.  Dec.  92  ;  Connect- 
icut ^lutual  Life  Insurance  Co.  v.  Schaefer,  94  U.  S.  457,  24  L.  Ed. 
251;  May  on  Insurance,  §  112:  Bliss  on  Insurance,  §  76;  Bacon  on 
Insurance,  §  729;  Beach  on  Insurance,  §  861;  Joyce  on  Insurance,  § 
729;   Bloomington  Mutual  Benefit  Association  v.  Blue,  120  111.  121,  11 


80  INSURABLE   INTEREST 

N.  E.  331,  60  Am.  Rep.  558;  Union  Fraternal  League  v.  Walton,  109 
Ga.  1,  34  S.  E.  317,  46  L.  R.  A.  424,  77  Am.  St.  Rep.  350;  Prudential 
Ins.  Co.  V.  Hunn,  21  Ind.  App.  525,  52  N.  E.  772,  69  Am.  St.  Rep.  380; 
N.  W.  Masonic  Aid  Ass'n  v.  Jones,  154  Pa.  99,  26  Atl.  253.  35  Am.  St. 
Rep.  810;  Albert  v.  Mutual  Life  Ins.  Co.,  122  N.  C.  92,  30  S.  E.  127. 
65  x^m.  St.  Rep.  693.  On  the  other  hand,  what  is  known  as  'wagering 
or  gambling  insurance'  is  universally  condemned,  and  our  court,  in 
harmony  with  the  doctrine  generally  prevailing,  is  strongly  committed 
to  the  principle  that  a  person  cannot  himself  procure  insurance  upon 
a  life  in  which  he  has  no  insurable  interest,  growing  out  of  kinship, 
dependency,  or  the  relation  of  debtor  and  creditor,  nor  obtain  an  as- 
signment of  such  insurance;  nor  will  a  person  be  permitted  to  insure 
his  own  life  for  the  benefit  of  another,  if  that  other  induces  him  to 
procure  the  insurance  and  pays  the  premiums  thereon,  or  there  is  any 
evidence  tending  to  show  that  the  insurance  was  obtained  with  a  view 
to  avoid  or  evade  the  law  against  speculative  insurance." 

This  is  a  sound  and  reasonable  rule,  and  if  it  were  otherwise  it 
would  be  in  conflict  with  the  universal  doctrine  that  a  person  who  is 
compos  mentis  can  give  away  his  property  to  any  person  he  pleases; 
it  would  operate  to  render  invalid  all  devises  to  persons  not  closely 
enough  related  to  have  an  insurable  interest  in  the  life  of  the  testa- 
tor. What  reason  can  be  given  warranting  the  declaring  of  an  in- 
surance policy  void  when  a  friend,  a  stranger  in  blood,  is  made  the 
beneficiary  by  the  assured,  that  would  not  apply  with  the  same  force 
to  a  testator  devising  property  to  a  person  not  having  an  insurable 
interest  in  the  life  of  the  testator?  Yet  such  devises  have  been  uni- 
versally upheld.  Is  it  possible  that  a  beneficiary  in  an  insurance  pol- 
icy, such  as  is  alleged  in  the  case  at  bar,  would  have  a  greater  desire 
for  the  premature  death  of  the  assured  and  take  steps  to  produce  it, 
than  a  creditor  would,  especially  Harris,  who  was  only  the  surety  of 
Embry  in  the  case,  supra,  and  in  which  case  the  policy  was  upheld 
and  declared  not  to  be  a  wagering  contract?  In  the  cases  of  Hill  v. 
United  Life  Ins.  Association,  154  Pa.  29,  25  Atl.  771,  35  Am.  St.  Rep. 
807,  and  N.  W.  Masonic  Aid  Association  v.  Jones,  154  Pa.  99,  26 
Atl.  253,  35  Am.  St.  Rep.  810,  the  Supreme  Court  of  Pennsylvania 
said :  "A  man  may  insure  his  own  life,  paying  the  premium  himself, 
for  the  benefit  of  another,  who  has  no  insurable  interest,  and  that 
such  a  transaction  is  not  a  wagering  policy.  This  results  from  the 
right  which  a  man  has  to  dispose  of  his  own  property."  The  follow- 
ing cases  also  sustain  this  principle:  Prudential  Ins.  Co.  v.  Hunn,  21 
Ind.  App.  525,  52  N.  E.  772,  69  Am.  St.  Rep.  380,  and  Scott  v.  Dick- 
son, 108  Pa.  6,  56  Am.  Rep.  192.  In  the  last-named  case  the  identical 
question  involved  in  this  case  was  considered,  and  the  court  said : 
"Policies  of  this  nature  are  in  no  sense  wagering.  It  would  be  deny- 
ing a  man's  right  to  do  what  he  will  with  his  own  to  say  that  he 
could  not  in  any  form  insure  his  life  for  the  benefit  of  an  indigent 
relative,  or  a  friend  to  whom  he  felt  under  obligations.     And  the  fact 


INSURABLE   INTEREST   IN    LIVES  81 

that  he  continues  to  pay  the  premium  himself,  and  retains  the  con- 
trol of  the  policy  up  to  the  time  of  his  death,  leaves  no  room  for  spec- 
ulation or  the  improper  practice  which  a  few  years  ago  brought  such 
a  scandal  upon  the  life  insurance  business  in  this  state." 

It  is  claimed  that  the  case  of  Caudell  v.  Woodward,  supra,  estab- 
lishes a  different  principle.  That  case  was  decided  upon  the  organic 
law  of  a  fraternal  order,  but  language  is  used  in  the  opinion  which, 
seemingly,  sustains  appellee's  contention.  However,  the  conclusion 
reached  in  the  case  at  bar  is  also  announced  in  that  opinion ;  that  is, 
one  who  obtains  a  policy  of  insurance  on  the  life  of  another  must 
have  an  insurable  interest  in  the  life  of  that  other.  The  opinion  in 
that  case  also  announced  the  doctrine  that  one  is  prohibited  from  in- 
ducing another  to  take  out  insurance,  or  become  the  owner  of  such 
insurance  by  assignment,  unless  he  has  an  insurable  interest  in  the 
life  of  that  other;  and  that  Mrs.  Woodward,  a  stranger,  could  not 
recover  on  the  policy,  because  it  is  well  settled  that  one  obtaining  a 
policy  of  insurance  on  the  life  of  another,  or  who  induced  another 
to  take  out  a  policy  for  his  benefit,  must  have  an  insurable  interest. 
All  these  propositions  are  fundamental-  and  sound  in  law.  There  is 
nowhere,  however,  any  reason  given  in  the  Caudell  Case  why  a  person 
cannot  take  out  insurance  on  his  own  life,  pay  the  premiums,  and 
make  a  person  who  is  not  related  to  him  the  beneficiary;  nor  could 
there  have  been  presented  any  reason  against  it  that  would  not  have 
applied  with  equal  force  to  a  gift  of  the  same  amount  by  will  as  well. 

For  these  reasons,  the  judgment  of  the  lower  court  is  reversed  and 
remanded  for  further  proceedings  consistent  herewith. 


LIFE  INS.  CLEARING  CO.  v.  O'NEILL. 

(Circuit  Court  of  Appeals  of  United   States,  Third  Circuit,  1901.     106  Fed. 
800,  45  C.  C.  A.  641,  54  L.  R.  A.  225.) 

In  Error  to  the  Circuit  Court  of  the  United  States  for  the  Western 
District  of  Pennsylvania. 

Before  Dallas  and  Gray,  Circuit  Judges,  and  McPherson,  Dis- 
trict Judge. 

J.  B.  ]\IcPnERSON,  District  Judge. ^-  This  is  an  action  on  a  policy 
of  insurance  taken  out  and  maintained  by  an  adult  son  for  his  own 
benefit  upon  the  life  of  his  father,  and  the  question  for  decision  is 
whether,  under  the  facts  in  evidence,  the  son  had  an  insurable  inter- 
est sufficient  to  support  the  policy.     *     *     * 

The  uncontradicted  evidence  established  the  facts  that  the  son  was 
an  adult,  married,  and  having  a  home  and  family  of  his  own  apart 
from  his  father ;  that  he  was  not  supported  by,  and  did  not  support, 
his   father,  but  that  each  maintained  himself  by  his   own  exertions. 

12  Part  of  tbe  opinion  is  omitted. 
CooLEY  Ins. — 6 


82  INSURABLE    INTEREST 

There  is  nothing,  to  show  that  the  relation  of  debtor  and!  creditor  ex- 
isted between  them.  It  will  be  observed,  therefore,  that  the  precise 
question  is  *  *  *  whether  the  bare  fact  of  relationship  is  suffi- 
cient to  give  an  adult  son  an  insurable  interest  in  his  father's  life. 
Upon  this  point,  all  the  decisions,  so  far  as  we  have  been  able  to 
discover,  declare  that  no  such  interest  exists,  although  dicta  to  the 
opposite  effect  are  no  doubt  to  be  found,  and,  in  our  opinion,  this 
declaration  is  not  only  supported  by  the  weight  of  authority,  but  is 
also  in  harmony  with  the  principles  upon  which  the  doctrine  of  insur- 
able interest  rests. 

The  sum  of  the  decisions  and  of  text-book  discussion  upon  the  sub- 
ject of  insurable  interest  may,  we  think,  be  fairly  stated  thus:  No 
person  has  an  insurable  interest  in  the  life  of  another  unless  he  would 
in  reasonable  probability  suffer  a  pecuniary  loss,  or  fail  to  make  a 
pecuniary  gain,  by  the  other's  death;  or  (in  some  jurisdictions)  un- 
less, in  the  discharge  of  some  undertaking,  he  has  spent  money,  or 
is  about  to  spend  money,  for  the  other's  support  or  advantage.  The 
extent  of  the  insurable  interest — the  amount  for  which  a  policy  may 
be  taken  out,  or  for  which  recovery  may  be  had — is  not  now  under 
consideration.  What  is  often  called  "relationship  insurance"  must 
be  governed  by  this  rule.  It  must  rest  upon  the  foundation  of  a 
pecuniary  interest,  although  the  interest  may  be  contingent,  and 
need  not  be  capable  of  exact  estimation  in  dollars  and  cents.  Senti- 
ment or  aft'ection  is  not  sufficient  of  itself,  although  it  may  often  be 
influential  in  persuading  a  court  or  jury  to  reach  the  conclusion  that 
a  beneficiary  had  a  reasonable  expectation  of  pecuniary  advantage 
from  the  continued  life  of  the  insured.  In  one  relation  only — the  re- 
lation of  husband  and  wife — is  the  actual  existence  of  such  a  pecuniary 
interest  unimportant ;  the  reason  being  that  a  real  pecuniary  inter- 
est is  found  in  so  great  a  majority  of  cases  that  the  courts  conclusive- 
ly presume  it  to  exist  in  every  case,  whatever  the  fact  may  be,  and 
therefore  will  not  inquire  into  the  true  state  of  a  few  exceptional  in- 
stances. This,  we  think,  is  essentially  what  is  meant  by  the  declaration 
of  courts  and  text-book  writers  that  the  mere  relationship  of  husband 
and  wife  is  sufficient  to  give  an  insurable  interest.  The  supreme  court 
of  Vermont — alone,  we  think,  among  judicial  tribunals — seems  dis- 
posed to  hold  the  presumption  to  be  rebuttable.     *     *     * 

In  all  other  relationships  there  is  no  presumption  of  interest,  and 
no  insurable  interest  exists,  unless  the  reasonable  likelihood  of  pe- 
cuniary loss  or  gain  is  present  in  actual  fact.  No  doubt,  judicial 
language  is  to  be  found  supporting  the  view  that  the  mere  relation- 
ship of  parent  and  child  is  sufficient  to  give  an  insurable  interest. 
The  dictum  in  Warnock  v.  Davis,  104  U.  S.  775,  26  L.  Ed.  924,  is 

perhaps  more  often  referred  to  than  any  other  similar  declaration. 
*     *     * 

We  think  it  cannot  be  doubted  that  the  tendency  of  the  recent  de- 
cisions is  to  insist  upon  an  actual  or  presumed  pecuniary  interest  in 


INSURABLE    INTEREST   IN    LIVES  83 

every  case  (although  such  interest  may  no  dovibt  be  contingent,  and  to 
some  extent  undefined),  and  to  give  relationship  its  proper  place  by 
regarding  it  merely  as  an  important  factor  in  the  inquiry,  whether 
such  an  interest  does  in  reality  exist.  If,  then,  the  test  of  pecuniary 
interest  is  to  be  applied  to  the  facts  of  the  present  case,  it  is  clear  that 
the  son  had  no  insurable  interest  in  his  father's  life.  Again  laying 
aside  the  effect  of  the  poor  law  of  Pennsylvania,  it  is  plain  that  the 
son  would  lose  nothing  by  his  father's  death,  and  would  gain  noth- 
ing by  his  father's  continuance  in  life.  His  father  did  not  support 
him,  and  he  himself  had  not  spent,  nor  was  he  about  to  spend,  any 
money  in  his  father's  behalf  or  support.  Upon  principle,  therefore, 
we  think  that  the  policy  cannot  be  supported. 

If  we  turn  to  the  decided  cases,  the  weight  of  authority  leads  to 
the  same  conclusion.  We  have  not  been  referred  to  any  case  in 
which  it  is  held  that  the  mere  fact  of  relationship  between  a  father 
and  his  adult  son  is  sufficient.  As  already  stated,  dicta  to  this  eft'ect 
are  certainly  to  be  found,  notably  in  Loomis  v.  Insurance  Co.,  6  Gray 
(Mass.)  396;  Warnock  v.  Davis,  supra;  and  Corson's  Appeal,  113  Pa. 
446,  6  Atl.  213,  57  Am.  Rep.  479.  But,  while  these  expressions  of 
opinion  are  entitled  to  much  respect  because  of  the  sources  from  which 
they  come,  it  is  also  true  that  the  point  was  not  presented  for  deci- 
sion in  these  cases,  and  was  therefore,  presumably,  neither  argued 
nor  specially  considered.  For  this  reason,  we  cannot  give  to  such  ex- 
pressions the  same  weight  that  is  properly  given  to  a  decision  upon 
the  very  question. 

The  following  cases  deal  with  the  insurable  interest  growing  out 
of  the  relation  of  parent  and  child.  Other  citations  may  be  found 
in  the  note  to  57  Am.  Dec.  96,  and  in  May,  Ins.  (4th  Ed.)  §§  10+-107. 
In  Illinois,  the  case  of  Insurance  Co.  v.  Hogan,  80  111.  35,  22  Am. 
Rep.  180,  decides  that  the  mere  relation  of  father  and  son  does  not 
give  to  the  son  an  insurable  interest  in  the  life  of  the  father,  the  court 
saying  that  the  son  must  also  have  a  well-founded  or  visible  expecta- 
tion of  some  pecuniary  advantage  to  be  derived  from  the  continuance  of 
his  father's  life ;  and  the  recent  case  of  Society  v.  Dyon,  79  111.  App. 
100,  repeats  the  ruling,  that  the  mere  relationship  of  father  and  adult 
son  is  not  sufficient  to  give  the  son  an  insurable  interest  in  the  fa- 
ther's life.  The  point  decided  in  Mitchell  v.  Insurance  Co.,  45  Me. 
105,  71  Am.  Dec.  529,  was  that  a  father  has  an  insurable  interest  in  the 
life  of  his  minor  son,  but  the  court  added  the  dictum — which  may  be 
cited  in  connection  with  opposing  expressions  of  opinion — that  "a 
father,  as  such,  has  no  insurable  interest,  resulting  merely  from  that 
relation,  in  the  life  of  a  child  of  full  age."  The  supreme  court  of 
Indiana  in  Insurance  Co.  v.  Volger,  89  Ind.  572,  46  Am.  Rep.  185, 
held  that  a  daughter  has  no  insurable  interest  in  the  life  of  her  mother, 
saying  that  the  insurable  interest  in  the  life  of  another  must  be  a 
pecuniary  interest,  and  adding:  "Some  of  the  authorities  tend  in  the 
direction  that  mere  relationship,  as  between  parent  and  child,  is  a  suf- 


84  INSURABLE   INTEREST 

ficient  foundation  upon  which  to  rest  an  insurable  interest,  but  this 
view  is  not  substantiated  by  the  weight  of  authority."  Wakeman  v. 
Insurance  Co.,  30  Ont.  705,  decided  that  a  parent  has  a  vaHd  insur- 
able interest  in  the  life  of  a  minor  child.  Insurance  Co.  v.  Brant,  47 
Mo.  419,  4  Am.  Rep.  328,  which  was  an  action  on  a  policy  in  favor 
of  a  wife  upon  the  death  of  her  husband,  contains  a  dictum  that  "at 
common  law  the  insurable  interest  in  the  life  of  another  person  must 
be  a  direct  and  definite  pecuniary  interest,  and  a  person  has  not  such 
an  interest  in  the  life  of  his  wife  or  child  merely  in  the  character  of 
husband  or  parent."  In  Association  v.  Teewalt,  79  Va.  423,  decided 
in  1884,  it  does  not  appear  whether  the  son  was  a  minor  or  an  adult, 
nor  whether  the  son  had  taken  out  the  policy  on  his  father's  life,  or 
was  merely  the  beneficiary  in  a  policy  taken  out  and  maintained  by  the 
father  himself.  But,  assuming,  the  facts  to  have  been  as  they  are  in 
the  case  now  being  considered,  we  cannot  agree  with  the  assertion  of 
the  supreme  court  of  appeals  of  Virginia  that  "it  is  now  well  settled 
that  a  father  has  an  insurable  interest  in  the  life  of  his  child,  whether 
a  minor  or  of  full  age,  and  the  child  in  the  life  of  his  father."  Two 
cases  are  cited  in  support  of  this  assertion,  the  first  being  Warnock 
v.  Davis,  104  U.  S.  7T:>,  26  L.  Ed.  924,  in  which  the  validity  of  an 
assignment  of  a  life  policy,  made  to  a  person  having  no  insurable  in- 
terest, was  the  point  at  issue, — the  declaration  concerning  the  interest 
between  parent  and  child  being  merely  a  dictum, — and  the  second  case 
being  Insurance  Co.  v.  Luchs,  108  U.  S.  498,  2  Sup.  Ct.  949,  27  L. 
Ed.  800.  in  which  the  point  decided  was  that  one  partner  had  an  in- 
surable interest  in  the  life  of  his  co-partner.  We  think,  therefore,  it 
may  be  safely  said  that  the  Virginia  court  was  perhaps  overconfident 
in  declaring  the  proposition  just  quoted  to  be  well  settled.  In  the 
English  courts  it  has  been  distinctly  decided  that  a  father  has  no  pe- 
cuniary interest  in  the  life  even  of  his  minor  son  (Halfordi  v.  Kymer, 
10  Barn.  &  C.  725)  ;  and  in  Worthington  v.  Curtis,  1  Ch.  Div.  419, 
the  court  assumed,  as  a  proposition  that  did  not  need  discussion,  that 
a  father  has  no  insurable  interest  in  the  life  of  his  adult  son. 

The  cases  thus  cited  and  referred  to  are,  with  few  exceptions,  the 
only  cases  in  which  the  question  now  before  us  has  been  passed  upon, 
and  they  certainly  justify  the  conclusion  that  there  is  a  conflict  of 
opinion,  if  not  of  decision,  upon  the  question  now  before  the  court. 
But,  while  this  is  true,  the  weight  of  authority  is,  in  our  opinion, 
against  the  position  that  an  adult  son  has  an  insurable  interest  in  the 
life  of  his  father  merely  by  virtue  of  kinship.  The  current  of  the 
recent  decisions  shows  a  clear  tendency  to  insist  upon  the  existence 
of  a  pecuniary  interest,  actual  or  contingent,  upon  the  part  of  the  son 
before  he  can  take  out  a  valid  policy  upon  his  father's  life.  *  *  * 
Reversed. ^^ 

13  See,  also,  New  York  Life  Ins.  Co.  v.  Greenlee,  42  Intl.  App.  82,  84  N.  E. 
1101  (1908). 


INSURABLE   INTEREST   IN   LIVES  85 

CRONIN  V.  VERMONT  LIFE  INS.  CO. 

(Supreme  Court  of  Rhode  Island,  1S98.     20  R.  I.  570,  40  Atl.  497.) 

Action  by  Catherine  Cronin  against  the  Vermont  Life  Insurance 
Company.     On  demurrer  to  the  declaration. 

StinESS,  J.  This  action  is  brought  to  recover  insurance  on  the  life 
of  the  plaintiff's  niece,  and  the  main  question  raised  by  the  demurrer 
to  the  declaration  is  whether  the  plaintiff  had  an  insurable  interest  in 
the  life  of  her  niece.  The  English  act  of  1774  (14  Geo.  III.  c.  48, 
§  1)  prohibited  insurance  on  the  life  of  a  person  in  which  the  bene- 
ficiary shall  have  no  interest,  or  by  way  of  gaming  or  wagering.  Al- 
though the  statute  has  never  been  taken  as  a  part  of  our  law,  its  rule 
was  generally  followed  in  this  country,  as  declaratory  of  the  common 
law. 

But,  in  defining  the  term  "interest,"  the  tendency  of  the  decisions 
both  in  England  and  in  this  country  has  been  inclusive,  rather  than  ex- 
clusive. There  has  even  been  some  question  whether  insurance  with- 
out interest  should  be  held  to  be  void  on  the  ground  of  public  policy ; 
but,  in  this  state,  we  think  it  has  been  understood!  to  be  settled,  since 
Mowry  v.  Insurance  Co.,  9  R.  I.  346,  that  some  insurable  interest 
must  exist.     This,  too,  is  the  generally  accepted  rule. 

In  Clark  v.  Allen,  1 1  R.  I.  439,  23  Am.  Rep.  496,  it  was  held  that 
a  policy  valid  in  its  inception  could  be  transferred  to  a  bona  fide  pur- 
chaser, even  though  he  had  no  interest  in  the  life ;  and  some  of  the 
objections  to  such  insurance,  on  the  ground  of  public  policy,  were  con- 
sidered, and  shown  to  be  fanciful,  and  not  applied  to  other  branches 
of  law.  For  example,  the  element  of  chance  enters  into  annuities ; 
and  the  temptation  to  shorten  life,  in  order  to  hasten  the  possession 
of  a  remainder-man  after  a  life  estate  in  real  property,  is  as  strong 
as  in  the  case  of  a  beneficiary  under  a  life  policy. 

But  these  things  have  never  been  considered  to  be  contrary  to  public 
policy.  Still,  upon  principle,  a  purely  speculative  contract  on  the  life 
of  another  is  as  objectionable  on  the  grounds  of  public  policy  as  a 
like  contract  in  regard  to  grain  or  stocks.  In  fact,  it  is  more  so,  and 
such  a  contract  may  properly  be  held  to  be  void. 

But  the  case  is  quite  different  when  one,  by  his  own  contract,  or 
even  in  the  name  of  another,  upon  the  ground  of  debt,  affection,  or 
mutual  interest,  procures  insurance  for  the  benefit  of  another,  which 
is  really  to  stand  in  the  place  of  a  testamentary  gift.  And  so  kinship 
and  debt  have  come  to  be  recognized  as  sufficient  grounds  of  interest. 
BHss,  Ins.  (2d  Ed.)  •§§  12,  13;   1  May,  Ins.  (3d  Ed.)  §  102a. 

Recent  decisions  have  gone  further,  looking  more  to  the  situation 
of  the  parties  than  to  these  relations  alone. 

In  Warnock  v.  Davis,  104  U.  S.  77':>,  26  L.  Ed.  924,  Field,  J.,  said : 
"It  is  not  easy  to  define  with  precision  what  will  constitute  an  insur- 
able interest,  so  as  to  take  the  contract  out  of  the  class  of   wager 


86  INSURABLE    INTEREST 

policies.  It  may  be  stated  generally,  however,  to  be  such  an  interest, 
arising  from  the  relations  of  the  party  obtaining  the  insurance,  either 
as  creditor  of  or  surety  for  the  assured,  or  from  the  ties  of  blood 
or  marriage  to  him,  as  will  justify  a  reasonable  expectation  of  ad- 
vantage or  benefit  from  the  continuance  of  his  life."  We  think  that 
this  states  a  reasonable  rule,  and  that  it  is  now  substantially  the  ac- 
cepted rule.  The  demurrer  in  this  case  being  to  the  whole  declaration, 
we  need  not  examine  the  counts  in  detail.  The  important  facts  are 
that  the  niece  lived  with  the  aunt  from  early  childhood  at  different 
times,  amounting  to  years ;  that  their  relations  were  as  those  of  mother 
and  daughter ;  that  the  plaintiff  supported  her  niece,  the  insured ;  and 
that  a  debt,  both  of  affection  and  of  money,  was  due  to  the  plaintiff", 
for  which  she  expected,  and  had  a  right  to  expect,  return  from  the 
insured.  Does  this  set  out  an  insurable  interest?  We  do  not  under- 
stand the  word  "debt,"  as  here  used,  to  mean  a  debt  recoverable  at 
law,  but  a  moral  obligation,  from  which  the  plaintiff  had  the  right  to 
expect  care  and  kindness  from  the  niece  in  case  of  need.  Taken  in 
this  view,  we  think  it  shows  an  insurable  interest,  under  the  principles 
above  laid  down. 

In  Lord  v.  Dall,  12  Mass.  115,  7  Am.  Dec.  38,  it  was  held  that 
a  sister  had  an  insurable  interest  in  the  life  of  a  brother,  who  stood 
to  her  in  loco  parentis.  The  court  said,  "In  common  understanding, 
no  one  would  hesitate  to  say  that  in  the  life  of  such  a  brother  the  sis- 
ter had  an  interest."  The  later  case  of  Loomis  v.  Insurance  Co.,  6 
Gray  (Mass.)  396,  involved  the  question  of  the  interest  of  a  father 
in  the  life  of  a  minor  son;  but  Shaw,  C.  J.,  said  that,  upon  broader 
and  larger  grounds,  independently  of  the  fact  that  the  son  was  a 
minor,  and  that  the  assured  had  a  pecuniary  interest  in  his  earnings, 
the  court  was  of  opinion  that  the  father  had  an  insurable  interest. 
These  broader  grounds  appeared  further  on  to  be  "consideration  of 
strong:  morals,  and  the  force  of  natural  affection  between  near  kin- 
dred,  operating  often  more  efficaciously  than  those  of  positive  law." 

In  Insurance  Co.  v.  France,  94  U.  S.  561,  24  L.  Ed.  287,  a  case  be- 
tween brother  and  a  married  sister,  not  dependent,  Bradley,  J.,  goes 
so  far  as  to  say:  "Any  person  has  a  right  to  procure  insurance  on 
his  own  life,  and  to  assign  it  to  another,  provided  it  be  not  done  by 
way  of  cover  for  a  wager  policy ;  and  where  the  relationship  between 
the  parties,  as  in  this  case,  is  such  as  to  constitute  a  good  and  valid 
consideration  in  law  for  any  gift  or  grant,  the  transaction  is  entirely 
free  from  such  imputation.  The  direction  of  payment  in  the  policy  it- 
self is  equivalent  to  such  an  assignment."  In  Elkhart  Mut.  Aid  B. 
&  R.  Ass'n  V.  Houghton,  103  Ind.  286,  2  N.  E.  763,  53  Am.  Rep.  514, 
the  insurable  interest  of  a  grandson  in  the  life  of  a  grandfather,  with 
whom  he  lived,  was  upheld.  It  has  also  been  sustained  where  there  was 
no  kinship,  as  in  the  case  of  a  woman  who  was  engaged  to  be  married 
to  a  man  (Chisholm  v.  Insurance  Co.,  52  Mo.  213,  14  Am.  Rep.  414), 
and  in  the  case  of  a  widow  and  her  son-in-law,  who  lived  together 


INSURABLE    INTEREST   IN    LIVES  87 

(Adams  V.  Reed,  38  S.  W.  420,  18  Ky.  Law  Rep.  858,  35  L.  R.  A. 
692). 

The  principle  of  these  and  other  Hke  cases  is  that  the  interest  does 
not  depend  upon  any  HabiHty  for  support,  nor  upon  any  pecuniary 
consideration,  nor  even  upon  kinship.  It  may  be  for  the  benefit  of  the 
old  or  the  young,  where  the  relation  between  the  parties  is  such  as 
to  show  a  mutual  interest,  and  to  rebut  the  presumption  of  a  mere 
wager.  The  contract  is  complete  and  legal  in  itself,  and,  when  con- 
siderations of  public  policy  do  not  prohibit  its  enforcement,  there  is 
no  reason  why  it  should  not  be  carried  out. 

The  declaration  in  this  case  shows  that  the  plaintiff's  claim  is  not 
objectionable  on  the  grounds  of  public  policy.  It  shows  that  the  re- 
lation of  the  plaintiff  and  her  niece  had  been  of  such  a  character 
that  each  had  reason  to  rely  upon  the  other  in  case  of  need.  Should 
the  younger  die  first,  the  help  and  care  which  might  have  been  expect- 
ed from  her  in  the  declining  years  of  the  aunt  could  only  be  supplied 
by  insurance  on  her  life.  This  is  no  more  speculation  than  a  hus- 
band's provision  for  his  wife  in  the  same  way.  It  is  natural  and  rea- 
sonable, and  in  accordance  with  modern  business  methods.  In  short, 
it  is  security  for  an  insurable  interest. 

We  therefore  think  that  the  contract  set  out  in  the  declaration  is 
valid,  since  it  falls  within  the  proper  line  of  distinction  between  valid 
contracts,  where  there  is  mutual  interest,  and  invalid  contracts,  which 
are  evidently  mere  speculation.  The  demurrer  to  the  declaration  is 
overruled.^* 


CONNECTICUT  MUT.  LIFE  INS.  CO.  v.  LUCHS. 

(Supreme  Court  of  United  States,  1883.     108  U.  S.  498,  2  Sup.  Ct.  919,  27 

L.  Ed.  800.) 

In  Error  to  the  Supreme  Court  of  the  District  of  Columbia. 

Field,  J.^^  This  was  an  action  by  Leopold  Luchs  on  a  policy  of 
insurance  upon  the  life  of  Levi  Dillenberg,  issued  by  the  Connecticut 
Life  Insurance  Company  in  June,  1869.  Luchs  and  Dillenberg  were 
partners  at  the  time  in  the  business  of  buying  and  selling  tobacco  in 
the  city  of  Washington.  Their  partnership  was  formed  in  October, 
1866,  each  agreeing  to  contribute  his  services  and  one-half  of  the 
capital.  It  was  understood  that  the  money  of  Dillenberg  was  then 
invested  in  mining  stocks,  and  could  not  at  once  be  obtained.  Luchs 
accordingly  furnished  the  entire  capital,  which  was  over  $10,000.  Dil- 
lenberg never  contributed  his  portion,  and,  about  two  years  after  the 
partnership  was  formed,  his  failure  in  this  respect  caused  dissatisfac- 
tion and  complaint.     It  was  thereupon  suggested  by  one  Myers,  who 

14  For  a  discussion  of  insurable  interest  based  ou  relationship,  see  Cooley, 
Briefs  on  the  Law  of  Insurance,  vol.  1,  p.  281. 
13  Part  of  the  opinion  is  omitted. 


88  INSURABLE   INTEREST 

was  employed  by  an  agent  of  the  insurance  company,  and  who  had 
been  called  in  as  an  accountant  to  examine  the  books  of  the  concern, 
that,  as  a  means  of  "adjusting  the  dispute  or  misunderstanding  be- 
tween the  partners,"  a  policy  of  insurance  should  be  obtained  upon 
the  life  of  Dillenberg  for  the  benefit  of  Luchs,  and  that  Dillenberg 
should  retire  from  the  firm  within  a  year  afterwards.  Nothing,  how- 
ever, was  then  done  upon  this  suggestion,  but  in  the  following  year 
the  policy  in  suit  was  procured.     *     *     * 

The  second  question  presented  for  our  determination  is  whether 
Luchs  had  an  insurable  interest  in  the  life  of  Dillenberg.  Upon  this 
we  have  no  doubt.  Dillenberg  was  his  partner  and  had  not  paid  his 
promised  proportion  of  the  capital  of  the  concern,  x^t  the  time  the  pol- 
icy was  applied  for  he  was  still  in  default,  and  although  it  might  have 
turned  out  that  the  actual  amount  due,  upon  a  settlement  of  accounts, 
was  less  than  the  promised  proportion,  it  was  not  a  matter  definitely 
ascertained  at  the  time.  Besides  what  was  thus  due  to  him,  Luchs  was 
interested  in  having  Dillenberg  continue  in  the  partnership.  He  had 
such  an  interest,  therefore,  as  took  from  the  policy  anything  of  a 
wagering  character. 

As  this  court  said  in  Warnock  v.  Davis,  recently  decided:  "It  is 
not  easy  to  define  with  precision  what  will,  in  all  cases,  constitute  an 
insurable  interest,  so  as  to  take  the  contract  out  of  the  class  of  wager 
policies.  It  may  be  stated  generally,  however,  to  be  such  an  interest 
arising  from  the  relations  of  the  party  obtaining  the  insurance,  either 
as  creditor  of  or  surety  for  the  assured,  or  from  the  ties  of  blood  or 
marriage  to  him,  as  will  justify  a  reasonable  expectation  of  advantage 
or  benefit  from  the  continuance  of  his  life.  It  is  not  necessary  that 
the  expectation  of  advantage  or  benefit  should  be  always  capable  of 
pecuniary  estimation.  *  *  *  But  in  all  cases  there  must  be  a  rea- 
sonable ground,  founded  upon  the  relations  of  the  parties  to  each  oth- 
er, either  pecuniary  or  of  blood  or  affinity,  to  expect  some  benefit  or 
advantage  from  the  continuance  of  the  life  of  the  assured."  104  U. 
S.  779,  26  L.  Ed.  924. 

Certainly  Lvichs  had  a  pecuniary  interest  in  the  life  of  Dillenberg 
on  two  grounds :  because  he  was  his  creditor  and  because  he  was  his 
partner.  The  continuance  of  the  partnership,  and,  of  course,  a  con- 
tinuance of  Dillenberg's  life,  furnished  a  reasonable  expectation  of 
advantage  to  himself.  It  was  in  the  expectation  of  such  advantage 
that  the  partnership  was  formed,  and,  of  course,  for  the  life  expecta- 
tion, was  continued. 

In  Morrell  v.  Trenton  Mut.  Life  &  Fire  Ins.  Co.,  10  Cush.  (Mass.) 
282,  57  Am.  Dec.  92,  a  policy  was  taken  out  by  the  plaintiff  upon 
the  life  of  his  brother,  who  was  about  going  to  California,  on  an 
agreement  that  the  latter  should  pay  to  him  one-fourth  of  his  earn- 
ings for  the  following  year.  In  an  action  on  the  policy  it  was  con- 
tended that  the  plaintiff  had  no  insurable  interest  upon  the  life  of 
the  insured,  but  the  court,  after  deciding  that  he  had  such  an  interest 


INSURABLE   INTEREST   IN   LIVES  89 

from  the  fact  that  he  held  a  promissory  note  signed  by  the  firm  of 
which  the  insured  was  a  partner,  also  said  that  it  was  strongly  in- 
clined to  the  opinion  that  the  plaintiff  had  another  interest  in  the  life 
of  the  person  insured.  "He  had,"  said  the  court,  "a  subsisting  con- 
tract with  that  person,  made  on  a  valuable  consideration,  by  which 
he  was  to  receive  one-quarter  part  of  his  earnings  in  the  mines  of 
California  for  one  year.  Such  an  interest  cannot,  from  its  nature,  be 
valued  or  apportioned.  It  was  an  interest  upon  which  the  policy  at- 
tached. By  the  loss  of  his  life  within  the  year,  the  person  whose 
life  was  insured  lost  the  means  of  earning  anything  more,  and  the 
plaintiff  was  deprived  of  receiving  his  share  of  such  earnings  to  an 
uncertain  and  indefinite  amount." 

In  Trenton  Mutual  Life  &  Fire  Ins.  Co.  v.  Johnson,  24  N.  J.  Law, 
576,  a  policy  was  taken  out  by  the  plaintiff  on  the  life  of  one  A^an 
Aliddlesworth  for  $1,000.  one-half  payable  to  the  plaintiff  and  the 
other  half  to  Van  Middlesworth.  They  belonged  to  an  association 
called  the  New  Brunswick  &  California  Mining  &  Trading  Company, 
the  capital  stock  of  which  consisted  of  45  shares  of  $600  each.  The 
company  consisted  partly  of  shareholding  members  and  partly  of  ac- 
tive members,  the  shareholders  being  each  required  to  furnish  a  sub- 
stitute to  proceed  to  the  mines  of  the  company.  The  plaintiff  owned 
one  share,  advanced  $600  of  capital,  and  procured  Van  Middlesworth 
to  go  out  as  his  substitute,  which  he  did,  and  acted  as  his  agent  and 
substitute;  and  the  assets  of  the  company  having  been  divided  in 
California,  he  received  the  plaintiff's  share,  and  afterwards  died,  not 
having  paid  it  over.  By  one  of  the  articles  of  the  association  all  treas- 
ures and  all  the  proceeds  of  the  labor  of  each  member,  and  all  profits, 
were  to  go  into  a  general  fund  for  the  benefit  of  the  association.  To 
the  action  brought  on  the  policy  it  was  objected  that  the  plaintiff  had 
no  insurable  interest  in  the  life  of  the  deceased.  On  this  question  the 
court  said:  "In  the  present  case  Johnson  had  a  direct  interest  in  the 
life  of  his  substitute,  whose  earnings  were  to  constitute  a  part  of 
the  joint  funds,  of  which  he  was  entitled  to  his  share,  an  interest  fully 
equivalent  to  the  interests  of  a  wife  in  the  life  of  her  husband,  of 
a  child  in  that  of  a  parent,  or  a  sister  in  that  of  a  brother.  And  at 
Van  Middlesworth's  death,  although  prior  to  that  time  the  company 
had  been  virtually  dissolved,  he  had  an  interest  in  him  as  his  creditor 
to  the  extent  of  his  share  of  the  assets  in  his  hands." 

In  Bevin  v.  Conn.  Mut,  Life  Ins.  Co.,  23  Conn.  244,  the  plaintiff' 
had  obtained  a  policy  of  insurance  for  $1,000  on  the  life  of  one  Bar- 
stow,  to  whom  he  had  advanced  $350,  besides  articles  of  personal 
property,  to  enable  him  to  go  to  California  and  there  labor  for  one 
year,  on  an  agreement  that  he  would  account  to  the  plaintiff  for  one- 
half  of  his  gains.  The  court  said  that  Barstow  was  the  plaintiff's 
debtor  and  partner,  giving  to  the  plaintiff  an  interest  in  the  continu- 
ance of  his  life,  as  by  that  means,  through  his  skill  and  efforts,  the 
plaintiff  might  expect,  not  only  to  get  back  what  he  had  advanced,  but 


90  INSURABLE   INTEREST 

to  acquire  great  gains  and  profits  in  the  enterprise.  "All  the  books," 
the  court  added,  ''hold  this  to  be  a  sufficient  interest  to  sustain  a  pol- 
icy of  insurance.  As  to  the  value  of  this  interest,  we  think  it  must 
be  held  to  be  what  the  parties  agreed  to  consider  it  in  the  policy. 
This  was  the  sum  asked  for  by  the  plaintiff,  and  which  the  defendants 
agreed  to  pay  in  case  of  death,  and  for  which  they  were  paid  in  the 
premiums  given  by  the  insured.  The  policy  must,  we  think,  be  held 
to  be  a  valued  policy."  And,  after  referring  to  a  policy  of  insurance 
obtained  by  a  sister  on  her  brother's  life,  where  no  question  seemed 
to  have  been  made  as  to  the  amount,  but  only  whether  it  was  an  in- 
terest which  the  law  would  recognize,  the  court  said:  "So,  in  every 
case,  where  a  person  on  his  own  account  insures  the  life  of  a  rela- 
tive, if  the  sum  named  in  the  policy  is  not  to  be  the  rule  of  damages, 
we  inquire  what  is?  The  impossibility  of  satisfactorily  going  into  the 
question  in  most  cases,  and  especially  where  there  is  nothing  to  guide 
the  inquiry,  and  everything  is  uncertain,  would  lead  us  to  hold  that  a 
policy  like  this  is  a  valued  policy  as  most  consistent  with  the  under- 
standing of  the  parties  and  the  principles  of  law."     *     *     *  is 


MUTUAL  LIFE  INS.  CO.  OF  NEW  YORK  v.  BLODGETT. 
(Court  of  Civil  Appeals  of  Texas,  18&4.     8  Tex.  Civ.  App.  45,  27  S.  W.  286.) 

FiNLEY,  J.^''  This  is  a  suit  upon  a  life  insurance  policy,  showing 
upon  its  face  to  have  been  taken  out  by  Airs.  Lucinda  J.  Downey, 
upon  her  life,  in  favor  of  her  grandson,  J.  A.  Blodgett,  the  plaintiff 
in  the  court  below.  The  defendant  answered  *  *  *  setting  up  a 
want  of  insurable  interest  in  plaintiff.  *  *  *  'j^j^g  ^j-j^j  resulted  in 
a  verdict  and  judgment  for  plaintiff  for  amount  of  policy,  attorney's 
fees,  and  12  per  cent,  damages.  From  this  judgment  the  insurance 
company  appealed,  and  assigned  errors.     *     *     * 

It  is  urged  by  appellant  that  the  policy  is  void,  for  the  reason  that 
the  beneficiary  named  in  the  policy  had  no  insurable  interest  in  the 
life  of  the  insured,  and  the  policy  was  speculative  and  wagering  on 
the  part  of  plaintiff.  The  policy  recited  that  it  was  issued  upon  the 
application  of  Mrs.  Lucinda  J.  Downey.  J.  A.  Blodgett  was  named 
as  the  beneficiary,  and  his  relation  as  grandson  to  the  assured  was 
therein  disclosed.  It  is  not  shown  that  any  fraud  or  deception  was 
practiced  upon  the  insurance  company  by  which  it  was  deceived  as 
to  the  real  party  to  the  contract  of  insurance.  It  was  proven  that 
the  beneficiary  was  to  pay  the  premiums.  This  was  known  to  the 
company.  Indeed,  his  note  was  taken  for  the  first  premium,  and  the 
policy  was  issued  by  the  company  with  full  knowledge  of  the  facts 
as  to  the  relation  of  the  parties,  and  of  their  respective  interests  and 

16  For  further  discussion,  reference  may  be  made  to  Cooley,  Briefs  on  the 
Law  of  Insurance,  vol.  1,  p.  296. 
1"  Part  of  the  opinion  is  omitted. 


INTEREST   OF   CREDITOR    IN    LIFE    OF    DEBTOR  01 

undertakings  under  the  contract.  Under  this  state  of  fact,  the  com- 
pany should  not  be  permitted  to  deny  that  the  poHcy  speaks  the  truth 
as  to  the  party  who  made  the  appHcation  and  with  whom  the  con- 
tract of  insurance  was  made. 

Mrs.  Downey  had  an  insurable  interest  in  her  own  life,  and  had 
the  right,  as  between  herself  and  the  company,  when  a  policy  was 
issued  on  her  application,  to  name  the  person  to  whom  the  policy 
should  be  paid,  regardless  of  insurable  interest  in  her  life  being  pos- 
sessed by  such  person.  The  fact  that  the  premium  was  paid  by  the 
beneficiary  does  not  give  to  the  contract  the  character  of  a  wagering 
contract;  nor  does  the  fact  that  the  beneficiary  has  no  insurable  in- 
terest in  the  life  of  the  assured  render  the  policy  void  as  against  pub- 
lic policy.  The  courts  will  treat  the  person  named  as  beneficiary,  hav- 
ing no  insurable  interest,  as  a  trustee  appointed  to  collect  the  policy 
for  the  benefit  of  those  legally  entitled,  thereby  enforcing  the  contract 
by  which  the  company  has  solemnly  bound  itself,  and  at  the  same  time 
conserving  public  policy,  by  preventing  the  stranger  from  gambling 
in  the  life  of  his  fellow  or  profiting  by  his  death.  Insurance  Co.  v. 
Williams,  79  Tex.  633,  15  S.  W.  478;  Insurance  Co.  v.  Hazlewood. 
75  Tex.  351,  12  S.  W.  621,  7  L.  R.  A.  217,  16  Am.  St.  Rep.  893; 
Investment  Co.  v.  Baum,  29  Ind.  236;  Langdon  v.  Insurance  Co.  (C. 
C.)  14  Fed.  272;  Curtiss  v.  Insurance  Co.,  90  Cal.  245,  27  Pac.  211, 
25  Am.  St.  Rep.  114;  Mayher  v.  Insurance  Co.  (decided  by  this  court 
at  present  term)  87  Tex.  169,  27  S.  W.  124. 

Under  this  view,  the  question  whether  the  beneficiary  had  an  in- 
surable interest  in  the  life  of  his  grandmother  becomes  abstract  and 
its  consideration  unnecessary.  So  far  as  the  insurance  company's  lia- 
bility is  concerned,  it  cannot  avoid  the  payment  of  the  policy  upon 
this  ground.     *     *     *  is 


V.  Interest  of  Creditor  in  Life  of  Debtor  ^* 


RITTLER  V.  SMITH. 

<Court  of  Appeals  of  Maryland.  ISSO.     70  Md.  261,  16  Atl.  890,  2  L.  R.  A.  S44.) 

Bill  by  Emeline  Smith,  administratrix  of  Victor  Smith,  against  Wil- 
liam H.  Rittler.     Decree  for  complainant,  and  defendant  appeals. 

18  The  judgment  of  the  trial  court  was  reversed  for  error  in  refusing  to 
:admit  certain  evidence  on  other  issues. 

For  a  discussion  of  question  based  on  the  extent  of  interest,  see  Cooley. 
Briefs  on  the  Law  of  Insurance,  vol.  1,  p.  298  et  seq.  See  Equitable  Life 
Ins.  Co.  V.  Hazlewood,  75  Tex.  33S,  12  S.  W.  621,  7  L.  R.  A.  217,  16  Am.  St. 
Rep.  S93  (1889).  for  a  discussion  of  the  Texas  rule. 

19  For  discussion  of  principles,  see  Vance  on  Insurance.  §  53.  See,  also. 
€ooley.  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  291-301. 


92  INSURABLE   INTEREST 

MiLi^ER,  J.^"  In  June,  1886,  Victor  Smith  was  indebted  to  William 
H.  Rittler  in  the  sum  of  about  $1,000,  and,  Smith  being  insolvent, 
Rittler  took  out  certificates  of  insurance  on  Smith's  life  in  four  sev- 
eral mutual  aid  associations,  aggregating  on  their  face  the  sum  of 
$6,500.  These  certificates  were  all  in  favor  of  Rittler,  and  he  paid 
all  the  premiums  or  assessments  thereunder.  Smith  died  in  March, 
1887,  and  Ritter  collected  from  these  insurances  the  sum  of  $2,124.82, 
which  appears  to  have  been  all  that  could  have  been  collected  accord- 
ing to  the  terms  of  the  certificates  and  the  financial  condition  of  the 
associations.  Deducting  from  this  sum  the  debt  and  interest  due  Rit- 
tler, the  premiums  he  had  paid,  and  the  costs  and  expenses  of  effect- 
ing the  insurances,  there  remained  a  balance  of  $474.53  as  of  the  1st 
of  June,  1887.  On  the  3d  of  October  following,  letters  of  adminis- 
tration on  Smith's  estate  were  granted  to  an  administratrix,  who 
thereupon  filed  her  bill,  claiming  this  balance  as  belonging  to  the  es- 
tate of  the  decedent.  In  his  answer  Rittler  denied  this  claim,  and  in- 
sisted that  the  money  belonged  to  him.  The  case  was  heard  on  bill 
and  answer,  and  the  court  below  decreed  in  favor  of  the  complainant.. 
From  this  decree  Rittler  has  appealed. 

The  question  as  thus  presented  is  an  interesting  one,  is  of  first  im- 
pression in  this  state,  and  has  been  very  ably  argued.  On  the  part 
of  the  appellant  it  is  contended  that  where  a  creditor,  with  his  own 
money,  and  for  his  own  account,  effects  and  keeps  up  an  insurance  on 
the  life  of  his  debtor,  the  whole  of  the  proceeds  belong  to  him  unless 
it  appears  that  he  has  gone  into  it  for  the  mere  purpose  of  specula- 
tion, which,  in  this  case,  is  expressly  negatived  by  the  answer,  the 
averments  of  which  must  be  taken  as  true,  the  case  having  been  heard 
on  bill  and  answer.  On  the  other  hand,  counsel  for  the  appellee  con- 
tend that  where  the  creditor  receives  more  than  enough  to  reimburse 
him  for  his  debt  and  outlay,  with  interest,  he  will,  as  to  the  balance, 
be  regarded  as  a  trustee  for  the  personal  representative  of  the  debtor. 

There  have  been  numerous  decisions  upon  this  subject,  some  of 
which  are  conflicting.  On  many  points,  however,  bearing  upon  the 
question,  there  is  a  general  concurrence  of  judicial  opinion  and  au- 
thority. For  instance,  it  is  generally  held  by  the  courts  in  this  coun- 
try that  one  who  has  no  insurable  interest  in  the  life  of  another  can- 
not insure  that  life.  Such  insurances  are  considered  gambling  con- 
tracts, and  for  that  reason  void  at  common  law,  apart  from  any  stat- 
ute forbidding  them.  In  England  they  were  held  valid  at  common  law. 
but  were  prohibited  as  introducing  a  "mischievous  kind  of  gaming" 
by  the  first  section  of  the  statute  (14  Geo.  Ill,  c.  48).  The  effect  of 
this  section,  as  construed  by  the  English  courts,  is  to  make  the  law 
of  England,  by  act  of  parliament,  the  same  as  it  has  been  held  to  be 
by  the  courts  in  this  country  without  such  an  act.     In  some  cases  they 

2  0  rart  of  the  opinion  is  omitted. 


INTEREST   OF   CREDITOR   IN   LIFE    OF    DEBTOR  93 

have  been  denounced  as  void,  not  simply  because  they  tend  to  pro- 
mote gambling,  but  because  they  are  incentives  to  crime.  The  force 
of  this  latter  suggestion  has  been,  and  may  well  be  doubted.  It  means 
that  one  not  related  or  connected  by  consanguinity  or  marriage,  who 
may  have  a  direct  pecuniary  interest  in  the  speedy  death  of  another, 
will  thereby  be  tempted  to  murder  him,  though  he  knows  that  hang- 
ing is  the  penalty  for  such  a  crime.  This  doctrine,  carried  to  its  logi- 
cal result,  has  a  far  reaching  effect.  It  strikes  down  every  legacy  to 
a  stranger  which  may  become  known  to  the  legatee,  as  is  frequently 
the  case,  before  the  death  of  the  testator.  It  makes  void  every  sim- 
ilar limitation  in  remainder  after  the  death  of  a  life-tenant.  Every 
like  conveyance  of  property,  in  consideration  that  the  grantee  shall 
support  the  grantor  during  his  life,  falls  under  the  same  condemna- 
tion. Yet  we  know  of  no  case  in  which  a  court  has  declared  such 
testamentary  dispositions  or  conveyances  to  be  void  on  this  ground. 
Other  instances,  in  which  the  same  result  would  follow  from  the  ap- 
plication of  this  doctrine,  could  be  readily  suggested,  but  we  need  not 
pursue  the  subject  further.  All  the  authorities  also  concur  in  holding 
that  a  creditor  has   an  insurable   interest  in  the  life  of   his   debtor. 

In  support  of  the  view  taken  by  the  appellee's  counsel,  cases  have 
been  cited  in  which  it  has  been  held  that  the  assignee  of  a  life  pol- 
icy, who  has  no  insurable  interest  in  the  life,  stands  in  the  same  posi- 
tion as  if  he  had  originally  taken  out  the  policy  for  his  own  benefit. 
In  other  words,  the  contention  is  that  the  assured  himself  can  make 
no  valid,  absolute  assignment  of  his  policy  to  one  who  has  no  insura- 
ble interest  in  his  life.  But  our  own  decisions  are  opposed  to  this. 
It  is  settled  law  in  this  state  that  a  life  insurance  policy  is  but  a  chose 
in  action  for  the  payment  of  money,  and  may  be  assigned  as  such  un- 
der our  act  of  1829,  c.  51.  Insurance  Co.  v.  Flack,  3  Md.  341,  56 
Am.  Dec.  742;  Whitridge  v.  Barry,  42  Md.  150.  It  is  quite  a  com- 
mon thing  for  the  bond  or  promissory  note  of  a  private  individual  to 
be  sold  through  a  broker  to  a  bona  fide  purchaser  for  less  than  its 
face  value,  and  when  the  latter  takes  an  assignment  of  it  without  re- 
course, he  becomes  its  absolute  owner,  and  is  not  bound  to  refund 
to  the  vendor  anything  he  may  recover  upon  it  over  and  above  what 
he  paid  for  it.  So  a  life  policy,  being  a  similar  chose  in  action,  may 
be  disposed  of  and  assigned  in  the  same  way,  provided  the  assent  of 
the  insurer  is  obtained  where  it  is  so  stipulated  in  the  instrument.  In 
such  case,  the  assignee  must,  of  course,  keep  the  policy  alive  by  the 
due  payment  of  premiums  if  he  wishes  to  realize  anything  from  it. 
Such  an  assignment  is  valid  in  this  state  if  it  be  a  bona  fide  business 
transaction,  and  not  a  mere  device  to  cover  a  gaming  contract.  Such 
is  also  the  English  rule.     Ashley  v.  Ashley,  3  Sim.  149. 

These  considerations  prevent  us  from  adopting  some  of  the  reason- 
ing of  the  supreme  court  in  Warnock  v.  Davis,  104  U.  S.  775,  26  L. 
Ed.  924.    It  seems  to  us,  with  great  deference,  that  from  the  facts  in 


94  INSURABLE   INTEREST 

that  case  the  association,  which  was  the  assignee,  could  well  be  regard- 
ed as  standing  in  the  same  position  as  if  it  had  taken  out  the  policy 
in  its  own  name,  and,  having  no  insurable  interest  in  the  life,  it  clearly 
became  a  wager  policy.  The  assignment  was  made  the  day  after  the 
policy  was  issued,  in  pursuance  of  an  agreement  to  that  efTect  made 
the  day  of  its  issuance.  The  assignment  was  evidently  a  mere  device 
to  cover  up  a  gaming  transaction.  In  the  preceding  case  of  Cam- 
mack  V.  Lewis,  15  Wall.  643,  21  L.  Ed.  244,  the  debt  due  the  creditor 
was  only  $70,  and  the  policy  was  for  $3,000.  It  was  taken  out  by 
the  debtor,  who  was  in  bad  health,  at  the  suggestion  of  the  creditor, 
and  was  assigned  to  him  immediatelv  after  it  was  made  out,  he,  at 
the  same  time,  taking  a  note  from  his  debtor  for  $3,000,  confessedly 
without  consideration.  In  view  of  these  facts,  the  court  well  said : 
'Tt  was  a  sheer  wagering  policy,  and  probably  a  fraud  on  the  in- 
surance company.  To  procure  a  policy  for  $3,000  to  cover  a  debt  of 
$70  is  of  itself  a  mere  wager.  The  disproportion  between  the  real 
interest  of  the  creditor  and  the  amount  to  be  received  by  him  deprives 
it  of  all  pretense  to  be  a  bona  fide  effort  to  secure  the  debt,  and  the 
strength  of  this  proposition  is  not  diminished  by  the  fact  that  Cam- 
mack  was  only  to  get  $2,000  out  of  the  $3,000,  nor  is  it  weakened  by 
the  fact  that  the  policy  was  taken  out  in  the  name  of  Lewis,  and  as- 
signed by  him  to  Cammack."  It  was  "under  these  circumstances" 
that  the  court  held  that  Cammack  could  hold  the  policy  only  as  secu- 
rity for  the  debt  due  him  when  it  was  assigned,  and  such  advances  as 
he  might  afterwards  make  on  account  of  it.  If  such,  then,  be  the 
nature  of  a  life  insurance  contract,  and  if  a  bona  fide  assignee  for 
value,  though  a  stranger,  may  recover  and  hold  the  whole  amount  for 
his  own  use,  why  may  not  a  creditor,  who,  in  pursuance  of  a  bona 
fide  effort  to  secure  payment  of  his  debt,  insures  the  life  of  his  debtor, 
and  takes  the  policy  in  his  own  name,  or  for  his  own  benefit,  be  enti- 
tled to  hold  all  he  can  recover?  He  is  in  fact  the  owner  of  the  pol- 
icy, takes  the  risk  of  the  continued  solvency  of  the  insurance  com- 
pany, and  is  obliged  to  keep  the  policy  alive  by  paying  the  annual 
premiums  during  the  life  of  the  debtor,  and  the  latter  is  under  no  ob- 
ligation to  do  anything,  and  in  fact  does  nothing  in  this  respect.  If 
he  pays  the  debt  to  his  creditor,  he  has  only  discharged  his  duty,  and 
what  interest  has  he  in  the  policy,  or  in  what  his  creditor  may  re- 
cover upon  it?     *     *     * 

We  agree  that  there  may  be  such  a  gross  disproportion  between  the 
debt  and  the  amount  of  the  policy  as  to  stamp  the  transaction  as  in- 
dicating upon  its  face  want  of  good  faith,  and  as  a  mere  speculation 
or  wager.  The  case  of  Cammack  v.  Lewis  affords  an  instance  of  such 
gross  disparity,  but  no  general  rule  on  this  subject  has  as  yet  been 
laid  down  by  the  courts,  and  it  is  probably  better  to  leave  each  case  to 
depend  on  its  own  circumstances.  The  disparity  between  the  debt  of 
$1,000  and  $6,500,  the  aggregate  of  the  sums  named  in  the  certificates, 
is  certainly  great,  but  upon  examination  it  is  more  apparent  than  real 


INTEREST   OF   ASSIGNEE    OF   A    LIFE    POLICY  95 

The  answer,  which  we  must  take  as  true,  shows  bona  fides  on  the 
part  of  the  creditor.  The  poHcies  were  all  in  mutual  aid  associations, 
where  mortuary  dues  are  paid  by  assessments  and  where,  of  course, 
the  sum  to  be  realized  depends  upon  the  number  and  solvency  of  the 
members.  One  of  the  certificates  for  $2,000  contained  a  condition  that 
only  one-half  should  be  paid  if  the  assured  should  die  within  one  year 
from  its  date,  an  event  which  actually  occurred.  Another  expressly 
provided  that  he  should  receive  an  amount  not  exceeding  $2,000,  but 
according  to  the  numbers  liable  to  assessment  on  this  certificate,  and 
from  that  he  received,  according  to  its  terms,  only  $250.  Another  of 
the  associations  was  in  financial  difficulties,  and  he  compromised  his 
claim  on  a  certificate  for  $1,000  and  received  only  $132.82.  By  taking 
out  these  certificates  he  became  liable  to  be  assessed  as  a  member,  and 
during  the  short  time  they  were  running  (from  June  to  the  following 
March)  he  paid,  in  this  shape  and  in  premiums,  the  sum  of  $351.75. 
In  view  of  the  character  of  these  certificates,  and  of  the  associations 
by  which  they  were  issued,  we  cannot  say  the  disproportion  between 
the  debt  and  the  real  amount  and  value  of  the  insurances  is  so  great 
in  this  case  as  to  warrant  a  sentence  of  condemnation  against  the 
transaction  as  being  a  mere  speculation  or  wager  on  the  life  of  the 
debtor.     *     *     * 

On  the  whole,  we  are  of  opinion  the  weight  of  reason  as  well  as  of 
authority  sustains  the  appellant's  claim.  We  shall  therefore  reverse 
the  decree  appealed  from,  and  dismiss  the  appellee's  bill. 


VI.  Interest  of  Assignee  of  a  Life  Policy  ^^ 


CHAMBERLAIN  v.  BUTLER. 

(Supreme  Court  of  Nebraska,  1901.     61  Xeb.  730.  86  N.  W.  481,  54  L.  R.  A. 

338,  87  Am.   St.   Rep.  478.) 

Action  by  Florence  M.  Butler,  administratrix  of  the  estate  of  Rob- 
ert L.  Butler,  deceased,  against  Charles  AI.  Chamberlain  and  others, 
to  recover  the  proceeds  of  a  policy  of  life  insurance  issued  by  the  Home 
Life  Insurance  Company  on  the  life  of  the  said  Robert  L.  Butler. 
This  policy  Butler  assigned  to  Chamberlain,  and  by  Chamberlain  it 
was  subsequently  assigned  to  one  Crandall.  It  appeared  that  after 
the  assignment  to  Chamberlain  he  paid  several  of  the  annual  pre- 
miums due  on  the  policy.  From  a  judgment  for  plaintiff,  the  defend- 
ant Chamberlain  brings  error. 

21  For  discussion  of  principles,  see  Vance  on  Insurance.  §  54.  See,  also,. 
Coolej-,  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  262-278. 


96  INSURABLE   INTEREST 

NoRVAL,  C.  J.'^  *  *  *  Several  interesting  questions  are  pre- 
sented in  the  briefs  of  counsel,  but  we  think  it  unnecessary  to  decide 
more  than  one,  owing  to  the  position  we  shall  take  on  it.  While  the 
petition  alleges  that  the  policy  was  merely  pledged,  it  is  agreed  by 
the  stipulation  quoted  that  it  was  in  fact  sold  and  assigned)  absolute- 
ly by  Butler  to  Chamberlain.  If  such  assignment  was  valid,  then  the 
latter  was  the  owner  of  it,  and  had  the  right  to  dispose  of  it  as  he  saw 
fit.  We  think  the  law  is  that  under  the  facts  it  was  lawful  for  But- 
ler to  dispose  of  the  policy.  We  are  aware  that  there  is  a  sharp  con- 
flict of  authorities  in  the  several  American  courts  relative  to  the  va- 
Hdity  of  a  sale  of  life  insurance  policy  by  one  having  an  insurable  in- 
terest to  one  not  having  such  interest.  In  all  the  states,  perhaps,  it  is 
held  against  public  policy  for  one  not  having  an  insurable  interest  to 
procure  insurance  upon  the  life  of  another,  even  though  it  be  with 
the  consent  of  such  person.  In  some  of  the  states  it  is  held  against 
public  policy  for  one  who  has  taken  out  insurance  upon  his  own  life 
to  transfer  it  to  one  having  no  insurable  interest.  In  some  of  the 
states  such  a  transaction  is  prohibited  by  express  legislative  enact- 
ment. 

But  the  question  to  be  decided  here  is,  assuming  that  Chamberlain 
had  no  such  interest  in  the  life  of  Butler,  could  he  legally  buy  the 
policy  in  question,  such  policy  in  its  inception  having  been  valid,  and 
taken  out  in  good  faith  by  Butler,  with  no  intention  or  design  on  his 
part  of  assigning  it  subsequently  to  Chamberlain.  Those  courts  which 
hold  such  a  transaction  void  proceed  on  the  ground  of  public  policy. 
Originally,  at  common  law,  choses  in  action  that  were  assignable  were 
exceedingly  few,  but  the  tendency  is  now  reversed,  and  those  not  as- 
signable are  the  exception,  rather  than  the  rule.  The  modern  policy 
being,  then,  as  above  stated,  the  reason  for  a  rule  contrary  to  such 
tendency  should  be  exceedingly  strong  before  a  court,  where  the  ques- 
tion is  yet  unsettled,  should  adopt  a  contrary  rule  in  any  given  case. 
While  public  policy  is  a  salutary  thing,  it  has  its  limitations  and  dan- 
gers. Among  them  is  the  fact  that  it  is  an  exceedingly  indefinite  term, 
has  no  lines  of  distinct  demarkation,  and  may  readily  lend  its  aid  to 
a  court  anxious  to  make  a  good  case,  rather  than  a  safe  precedent. 
For  that  reason,  before  a  case  is  decided  upon  that  ground  solely, 
courts  should  be  very  sure  that  the  reasons  for  so  doing  are  clear, 
strong,  and  admit  of  no  doubt  concerning  their  reasonableness  or  ap- 
plicability. 

Now,  the  principal  reason  for  branding  assignments  of  this  nature 
as  inimical  to  sound  public  policy  is  that  the  interest  of  a  stranger  in 
the  death  of  the  insured  is  so  strong  as  to  tempt  to  murder  of  the 
latter,  the  earlier  to  participate  in  the  avails  of  the  policy.  Such  in- 
terest doubtless  tends  to  such  a  desire.  But  the  same  desire  would 
exist  on  the  part  of  a  creditor,  who  has  an  insurable  interest,  or  of  one 

22  Part  of  the  opiuion  is  omitted  and  the  statement  of  facts  is  rewritter. 


INTEREST   OF   ASSIGNEE    OF   A    LIFE    POLICY  ,97 

who  advanced  money  on  the  policy,  where  his  only  hope  of  reimburs- 
ing himself  for  the  loan  might  be  the  policy.  It  is  exceedingly  doubt- 
ful if  strangers  are  any  more  apt  to  either  desire  or  seek  to  accomplish 
the  death  of  others  than  are  those  nearly  related  to  them.  The 
strength  of  this  desire,  where  it  exists,  depends  not  so  much  upon  the 
consanguinity  of  the  parties  as  upon  the  moral  stamina  of  him  who 
holds  the  expectancy,  be  that  expectancy  an  insurance  policy,  a  devise, 
a  remainder,  or  other  acquisition  which  may  not  be  had  until  the  death 
of  another. 

Another  reason  sometimes  assigned  for  holding  such  assignments 
illegal  is  that  an  assignee  having  no  insurable  interest  is  in  the  position 
of  one  who,  in  the  first  instance,  takes  out  a  wager  policy.  But  we 
think  not.  If  an  insurable  interest  exists  in  the  beneficiary  at  the 
time  the  policy  is  issued,  and  it  is  taken  out  in  good  faith,  the  object 
and  purpose  of  the  rule  against  wager  policies  would  seem  to  have 
been  sufficiently  attained  (16  Am.  &  Eng.  Enc.  Law  [2d  Ed.]  846), 
and  there  is  no  more  reason  to  apply  the  rule  to  policies  taken  out  in 
good  faith,  and  afterwards  assigned  in  good  faith,  than  there  would 
be  were  the  assured  to  retain  it  in  his  own  hands. 

Counsel  rely  upon  Warnock  v.  Davis,  104  U.  S.  775,  26  L.  Ed.  924, 
as  an  authority  to  uphold  the  judgment  of  the  lower  court.  That 
case  and  this  present  two  very  different  questions.  In  that  case  the 
msured  took  out  the  policy  in  pursuance  of  an  agreement  that  a  third 
party,  having  no  insurable  interest  in  his  life,  should,  in  consideration 
of  certain  payments  to  be  made  by  it,  receive  at  his  death  nine-tenths 
of  the  insurance  money.  In  the  opinion  Justice  Field  says :  "The  as- 
signment of  a  policy  to  a  party  not  having  an  insurable  interest  is  as 
objectionable  as  the  taking  out  of  a  policy  in  his  name."  Under  the 
facts  involved  in  that  case  the  language  was  appropriate,  for  there  was 
collusion  between  the  insured  and  the  party  to  be  benefited  by  his  death 
by  a  receipt  of  the  amount  above  mentioned.  But  the  language  is 
not  applicable  to  this  case,  for  there  was  no  agreement  between  Butler 
and  Chamberlain,  at  the  time  the  policy  was  procured,  that  the  latter 
should  participate  in  its  avails.  The  transaction  with  him  was  wholly 
independent  of  and  subsequent  to  the  original  one  between  Butler  and 
the  insurance  company.  If  their  agreement  had  existed  prior  to  the 
issuance  of  the  policy,  or  contemporaneous  therewith,  then  the  words 
quoted  would  be  applicable;    otherwise  not. 

That  this  is  the  meaning  of  the  words  is  clear  when  we  read  Insur- 
ance Co.  V.  France,  94  U.  S.  567,  24  L.  Ed.  287.  and  Insurance  Co. 
V.  Schaefer,  94  U.  S.  457,  24  L.  Ed.  251.  In  the  France  Case  that 
court  lays  down  the  rule  applicable  to  the  facts  in  this  case,  viz.  that 
any  person  has  a  right  to  procure  insurance  on  his  own  life,  and  to 
assign  it  to  another,  provided  it  be  not  done  by  way  of  cover  for  a 
wager  policy.  The  intention  and  good  faith  of  the  parties  are  the 
governing  principles.  In  the  Schaefer  Case  the  court  held  that  a  life 
CooLEY  Ins. — 7 


98  INSURABLE    INTEREST 

insurance  policy  originally  valid  does  not  cease  to  be  so  upon  the  in- 
termission of  the  assured  party's  interest  in  the  life  insured.  It  was 
certainly  not  intended  in  the  Warnock  Case  to  overrule  or  modify  ei- 
ther of  them.  They  are  not  in  conflict  with  that  case  when  the  facts 
are  remembered.  The  language  of  the  court  in  the  Warnock  Case  is 
unfortunately  somewhat  misleading  in  several  instances,  although  the 
ultimate  conclusion  reached  is  right.  The  comments  therein  on  the 
New  York  cases  (Valton  v.  Assurance  Co.,  20  N.  Y.  32,  and  St.  John 
V.  Insurance  Co.,  13  N.  Y.  31,  64  Am.  Dec.  529)  are  uncalled  for,  and 
not  involved  in  the  issues,  for  the  questions  of  law  decided  in  those 
rases  are  very  different  from,  and  not  necessarily  conflicting  with,  the 
law  involved  in  the  Warnock  Case. 

We  are  aware  that  several  eminent  American  courts  disagree  with 
the  New  York  cases  cited,  and  with  other  courts  of  this  country  which 
agree  with  the  latter.  It  seems  that  to  hold  contrary  to  that  rule 
would  have  the  effect  mentioned  in  St.  John  v.  Insurance  Co. — "with- 
out the  right  to  assign,  insurances  on  hves  lose  half  their  usefulness" ; 
a  fact  that  should  not  be  lost  sight  of  in  this  day,  when  almost  every 
person  carries  life  insurance  of  some  character,  the  commercial  value 
and  usefulness  of  which  should  be  fostered,  rather  than  crippled  or 
minified.  If  such  choses  in  action  may  be  legally  sold  absohitely,  it 
is  plain  that  more  can  be  realized  from  them  in  the  day  of  need  than 
if  valuable  only  as  security  for  loans.  And  until  it  shall  be  made  to 
appear  that  in  those  jurisdictions  where  such  policies  are  assignable 
absolutely  crimes  committed  by  such  assignees  are  more  frequent  than 
in  those  where  assignments  of  the  nature  of  the  one  here  involved  are 
illegal,  we  are  of  opinion  that  the  reasons  for  holding  such  transactions 
void  are  insufficient. 

Chamberlain,  then,  being,  under  the  facts  agreed  on,  the  absolute 
owner  of  the  policy,  had  the  right  to  transfer  it  to  Crandall,  and  such 
act  was  not  a  conversion  of  the  policy  or  insurance,  for  he  was  en- 
titled to  the  whole  of  the  proceeds  thereof,  free  from  all  claims  of  the 
plaintiff  or  the  estate  of  the  deceased.  The  judgment  is  therefore  re- 
versed.^^ 

2  3  See.  also,  Hardy  v.  JEhm  Life  Ins.  Co.,  152  N.  C.  286,  67  S.  E.  767 
(1910).  For  a  collection  of  authorities,  see  Gordon  v.  AVare  Nat.  Bank,  132 
Fed.  444,  65  C.  C.  A.  580.  67  L.  R.  A.  550  (1904).  The  decisions  of  Connecti- 
cut, Georgia,  Illinois,  Indiana,  Maryland  (see  Rittlei-  v.  Smith,  ante,  p. 
;ti),  Massachusetts,  New  Hampshire,  New  York,  Rhode  Island,  and  Wis- 
consin are  in  accord  with  the  principal  case.  Alaliania.  Michigan,  Virginia, 
Kansas,  Texas,  and  Pennsylvania  hold  that  an  Insurable  Interest  is  neces- 
sary.   The  question  is  unsettled  in  Missouri  and  Louisiana. 


I 


IN   GENERAL — OFFER   AND   ACCEPTANCE  99 


THE  MAKING  OF  THE  CONTRACT 
I.  In  General — Offer  and  Acceptance  ^ 


ZIMMERMANN  v.  DWELLING  HOUSE  INS.  CO.  OF 

BOSTON. 

(Supreme  Court  of  Michigan,  1S06.     110  Mich.  399,  68  N.  W.  215,  33  L. 

K.  A.  698.) 

Action  by  Frederick  C.  Zimmermann  against  the  Dwelling  House  In- 
surance Company  of  Boston.  Judgment  for  defendant,  and  plaintiff 
appeals. 

Moore,  J.^  The  plaintiff  was  a  local  agent  of  the  defendant  at  Sag- 
inaw, and  had  been  for  several  years  prior  to  the  date  of  the  policy 
sued  upon  in  this  case ;  and,  at  the  time  the  policy  was  issued,  there 
was  another  local  agent  representing  the  defendant  in  the  city.  On 
May  15,  1893,  plaintiff  wrote  a  policy  in  the  defendant  company,  in- 
suring himself  in  the  sum  of  $1,5(X)  on  his  household  goods,  $250  on 
his  barn,  $100  on  his  horse,  and  $150  on  his  vehicles,  robes,  feed,  etc. 
Without  notifying  the  company  of  this  risk,  he  retained  the  policy 
and  the  daily  report  which  is  usually  sent  to  the  company  until  ]\Iay 
20,  1893,  claiming  that  his  barn  was  not  completed  and  ready  for  oc- 
cupancy before  that  date.  On  that  date  he  sent  the  policy  and  daily 
report,  by  mail,  to  the  home  office  of  the  defendant,  at  Boston,  Mass. 
These  papers  w^ere  received  by  the  company  on  May  21),  1893.  Be- 
fore sending  the  policy,  the  plaintiff  had  indorsed  upon  it  the  words, 
"Kindly  approve  and  return."  The  property  covered  by  this  policy 
was  totally  destroyed  by  a  large  fire  on  May  20,  1893,  about  6:30 
o'clock  in  the  evening.  The  fire  started  at  about  4:30  p.  m.  The 
plaintiff  notified  the  company  of  the  loss  May  24th,  when  the  general 
agent,  W.  J.  Nichols,  arrived  in  the  city  to  look  after  the  losses  sus- 
tained by  the  company  in  this  large  fire.  No  premium  w^as  ever  paid 
or  tendered  by  the  plaintiff.  The  policy  was  never  accepted  by  the 
company,  and  was  never  delivered  or  returned  to  the  plaintiff.  The 
company  declined  to  pay  the  loss.  The  plaintiff  sued  the  defendant, 
and  the  judge  directed  a  verdict  in  favor  of  defendant. 

It  is  claimed  by  the  appellant  that  he  was  authorized  to  write  this 
policy  by  W\  J.  Nichols,  the  general  agent  of  the  defendant,  during 

1  For  discussion  of  principles,  see  Vance  on  Insurance.  §  56.  See,  also, 
Cooley.  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  407-435. 

2  Part  of  the  opinion  is  ouiitted. 


100  THE   MAKING   OF   THE    CONTRACT 

a  conversation  between  them  in  the  city  of  Saginaw,  in  February, 
1893.  The  conversation  is  described  by  the  plaintiff  as  follows:  "I 
told  him  that  I  wanted  to  write  a  policy  upon  my  own  goods,  and  he 

said :    'Write  it  in  the  usual  way.'     That  is  the  answer  he  gave  me. 

*     *     Hi " 

The  property  which  plaintiff  proposed  to  write  was  not  pointed  out 
to  Nichols,  but  the  plaintiff  told  Nichols  it  would!  be  his  household 
goods  and  barn  then  building.     *     *     * 

It  is  claimed  that  this  conversation  between  the  general  agent  of 
the  company,  in  which  the  general  agent  of  the  company  used  the 
expression,  "Write  it  in  the  usual  way,"  supplemented  by  the  writing 
of  the  policy  and  evidence  "that  it  is  the  custom  of  insurance  agents 
in  Saginaw  valley  to  insure  their  own  property  in  the  companies  for 
which  they  are  agents,  in  the  same  manner  that  they  insure  property 
of  other  persons — i.  e.  "that  the  custom  and  usual  way  in  the  city  of 
Saginaw  and  valley  of  writing  policies  upon  an  agent's  own  property 
at  that  time  was  to  make  a  memorandum  of  the  risk;  then  he  would 
make  a  daily  report  of  the  risk,  and  then  a  policy  conforming  to  that, 
and  spread  it  upon  his  insurance  register" — made  a  contract  upon 
which  the  company  would  be  liable,  whether  the  policy  was  accepted 
at  the  home  office  or  not.  We  cannot  sustain  that  contention.  When 
this  conversation  was  held,  the  barn  was  not  built.  It  was  not  finished 
until  about  the  15th  of  May.  No  statement  was  made  as  to  the  value 
of  the  property  to  be  insured,  or  for  how  much  it  was  to  be  insured, 
or  what  rate  of  premium  was  to  be  paid.  No  date  had  been  fixed 
for  the  commencement  or  termination  of  the  risk.  Giving  the  most 
liberal  construction  possible  to  the  language  used,  and  what  was  done, 
it  did  not  constitute  a  mutual  and  valid  contract,  binding  upon  both 
parties.  Michigan  Pipe  Co.  v.  Michigan  Fire  &  Marine  Ins.  Co.,  92 
Mich.  482,  52  N.  W.  1070,  20  h.  R.  A.  277. 

In  its  logical  order,  the  next  question  for  consideration  is :  Did  the 
writing  out  of  the  daily  report  and  the  policy,  and  its  entry  on  the 
policy  register,  constitute  a  contract  before  the  policy  was  approved  by 
the  company?  It  is  elementary  law  that  an  agent  must  not  be  per- 
sonally interested  adversely  to  his  principal.  Green  v.  Knoch,  92 
Mich.  26,  52  N.  W.  80;  Iron  Co.  v.  Kirkpatrick,  92  Mich.  252,  52 
N.  W.  628.  An  agent  for  receiving  applications  ceases  to  be  an  agent 
so  long  as  he  acts  in  a  matter  in  which  his  personal  interest  is  con- 
cerned. If  he  applies  for  insurance  on  his  own  property,  as  to  that 
property  he  is  no  agent  of  the  company.  He  cannot,  by  the  familiar 
rule  of  law,  as  agent,  represent  antagonistic  interests.  May,  Ins.  § 
125,  and  cases  cited.  It  follows  reasonably,  I  think,  that,  if  the  agent 
cr.nnot  act  for  the  company  so  as  to  bind  it  where  he  himself  is  an  ap- 
plicant for  insurance,  the  company  would  not  be  bound  until  his  act 
in  writing  the  policy  was  approved  by  it.  The  record  shows  that, 
while  the  policy  was  written  May  15th,  for  some  reason  it  was  not 
posted  for  mailing  until  May  20th,  and  was  not  received  until  May  23d, 


THE  FORM  REQUIRED— ORAL  CONTRACTS  101 

three  days  after  the  loss  occurred.    The  policy  never  was  approved  by 
the  company,  and  no  contract  creating  liability  was  made. 
The  judgment  is  affirmed.    The  other  justices  concurred. 


II.  The  Form  Required — Oral  Contracts 


HICKS  V.  BRITISH  AMERICAN  ASSUR.  CO. 

(Court  of  Apixials  of  New  York,  1900.    162  N.  Y.  284,  56  N.  E.  743,  48  L 

R.  A.  424.) 

Action  by  Georgiana  Hicks  against  the  British  America  Assurance 
Company  on  a  contract.  From  a  judgment  in  plaintiff's  favor  (13 
App.  Div.  444,  43  N.  Y.  Supp.  623),  defendant  appeals. 

Parker,  C.  J.*  We  are  agreed  that  the  verdict  of  the  jury  estab- 
lishes that  on  the  30th  day  of  December,  1893,  defendant's  agent 
Hobart  had  a  conversation  with  Col.  Hicks,  plaintiff's  assignor,  the 
legal  effect  of  which  was  to  create  a  contract  of  present  insurance 
in  the  sum  of  $2,500  upon  property  of  Col.  Hicks,  which  was  con- 
sumed by  fire  two  days  later.  The  agreement  that  the  contract  was 
one  of  present  insurance  accords  with  the  allegations  of  the  com- 
plaint, the  theory  of  the  counsel  as  shown  by  their  method  of  trial, 
and  the  charge  of  the  court.  That  position  cannot  be  attacked  from 
any  source,  for  either  that  which  was  said  operated  to  create  a 
contract  of  present  insurance,  or  else  no  contract  was  ever  made 
binding  upon  the  defendant.  The  evidence  tended  to  show  a  con- 
tract to  insure,  and  nothing  else.  It  is  not  pretended  that  a  con- 
tract of  any  kind  between  these  parties  was  made  after  the  con- 
versation of  December  30th.  The  jury  have  found  that  the  defend- 
ant's agent  said  to  Hicks,  after  a  general  discussion  on  the  subject 
of  insuring  the  property,  "You  are  insured  from  noon  on  the  30th 
day  of  December,  1893,  to  noon  of  December  30,  1894."  The  legal 
effect  of  this  answer  to  the  application  for  insurance  made  by  Col. 
Hicks  was  to  create  a  complete,  binding  agreement  for  insurance 
for  the  period  named,  upon  which  he  was  entitled  to  recover  for 
the  damages  sustained  by  the  fire,  had  he  made  performance  on  his 
part.  Ruggles  v.  Insurance  Co.,  114  N.  Y.  415,  21  N.  E.  1000,  11 
Am.  St.  Rep.  674. 

This  contract  of  insurance,  although  verbal,  embraced  within  it 
the  provisions  of   the   standard   policy   of   fire   insurance,   which   the 

3  For  discnssion  of  principles,  see  A'^ance  on  Insurance,  §§  57-59.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  391-406. 

*  Part  of  the  opinion  is  omitted. 


102  THE    MAKING    OF   THE    CONTRACT 

legislature  in  its  wisdom  formulated  for  the  protection  of  both  in- 
sured and  insurer.  It  is  usual  for  the  company  to  issue  a  policy 
of  insurance  evidencing-  the  contract  between  the  parties ;  but  the 
policy  accomplishes  nothing  more  than  that,  for,  when  the  contract 
is  entered  into  between  the  agent  and  the  owner,  whether  the  binder 
be  verbal  or  in  writing,  it  includes  within  it  the  standard  form  of 
policy,  and  the  contract  is  a  completed  one.  Ruggles'  Case,  supra; 
Lipman  v.  Insurance  Co.,  121  N.  Y.  454,  24  N.  E.  699,  8  L.  R.  A. 
719;  Karelsen  v.  Sun  Fire  Office,  122  N.  Y.  545,  25  N.  E.  921; 
Underwood  v.  Insurance  Co.,  161  N.  Y.  413,  55  N.  E.  936.  In  the 
three  cases  last  cited  the  binder  had  been  reduced  to  writing,  but 
there  is  no  distinction  whatever  in  principle  between  those  cases 
and  the  one  at  bar,  for  in  each  there  is  a  binding  contract  to  in- 
sure, and  necessarily  according  to  the  only  form  of  insurance  con- 
tract authorized  by  the  laws  of  this  state. 

The  law  reads  into  the  contract  the  standard  policy,  whether  it 
be  referred  to  in  terms  or  not.  In  Lipman's  Case,  supra,  Judge 
Andrews,  in  speaking  of  the  construction  to  be  put  upon  the  binding 
slip,  issued  in  that  case,  said :  "The  construction  is,  we  think,  the 
same  as  though  it  had  expressed  that  the  present  insurance  was  under 
the  terms  of  the  usual  policy  of  the  company  to  be  thereafter  de- 
livered." And  in  Karelsen's  Case  the  court  said :  "While  the  binding 
slip  contained  none  of  the  conditions  usually  found  in  insurance 
policies,  the  contract  evidenced  by  it  was  the  ordinary  policy  of  in- 
surance issued  by  the  company.  So  that,  in  any  construction  of  the 
contract,  it  must  be  regarded  as  though  it  had  expressed  that  the 
present  insurance  was  under  the  terms  of  the  usual  policy  of  the 
company  to  be  thereafter  delivered." 

So  that  all  this  plaintiff  had  to  do,  in  order  to  recover  in  this 
action,  aside  from  showing  a  loss  by  fire,  and  compliance  on  her 
part  with  the  conditions  of  the  contract,  was  to  prove  the  making 
of  the  contract.  This  was  accomplished  by  proving  the  conversation 
between  her  assignor  and  the  agent,  for  the  conversation  disclosed 
the  sum  for  which  the  property  was  to  be  insured,  the  amount  of 
premiums,  and  the  period  of  insurance,  and  the  statute  provided 
for  all  of  the  other  conditions  of  the  contract  of  insurance.  Neither 
party  to  it  had  the  right  to  add  to  or  take  from  the  requirements 
of  the  legislature  in  that  regard.  The  making  of  the  contract  the 
plaintiff  proved  to  the  satisfaction  of  the  jury,  and  she  did  not  at- 
tempt to  prove  anything  more.  This  the  trial  court,  as  well  as  the 
counsel,  understood,  and  the  case  was  tried  upon  that  theory  It 
has  been  discovered  in  this  court,  however,  that  the  judgment  against 
the  defendant  cannot  be  sustained  if  this  action  be  now  treated  in 
accordance  with  the  theory  that  induced  its  commencement,  and  upon 
which  it  was  tried,  namely,  that  the  plaintiff's  assignor  made  a  valid 
contract  of  insurance  with  the  defendant,  by  virtue  of  which  this 
plaintiff,   as  assignee,   is   entitled  to  recover  to   the   extent   provided 


THE  FORM  REQUIRED — ORAL  CONTRACTS  103 

for  by  the   policy  for  the   damages   sustained  by  her  through  the 
destruction  by  fire  of  the  building  insured. 

The  error  which  calls  for  a  reversal  of  the  judgment,  if  this  be 
treated  as  an  action  on  the  contract,  lies  in  the  trial  court's  charge 
to  the  jury,  in  effect,  that,  as  matter  of  law,  it  was  not  necessary 
for  the  insured  to  present  to  the  defendant  proofs  of  loss  in  accord- 
ance with  the  requirements  of  the  standard  policy.  To  avoid  this 
result,  it  is  proposed  in  the  dissenting  opinion  not  only  to  set  at 
naught  the  many  decisions  of  this  court  holding  that  on  an  appeal 
a  case  must  be  disposed  of  upon  the  theory  upon  which  it  was  tried 
(Snider  v.  Snider,  160  N.  Y.  151,  54  N.  E.  676;  Stephens  v.  Meriden 
Britannia  Co.,  160  N.  Y.  178,  54  N.  E.  781,  73  Am.  St.  Rep.  678; 
People  V.  Dalton,  159  N.  Y.  235,  53  N.  E.  1113;  Drucker  v.  Rail- 
way Co.,  106  N.  Y.  157,  12  N.  E.  568,  60  Am.  Rep.  437;  Baird  v. 
Mayor,  etc.,  96  N.  Y.  567),  but  also  to  decide  that,  growing  out  of 
this  contract,  the  plaintiff  had  another  cause  of  action,  the  main- 
tenance of  which  did  not  require  the  service  of  proofs  of  loss.  Hence 
it  is  claimed  that,  by  treating  the  case  as  having  been  tried  upon 
that  theory,  the  court  may  avoid  reversing  the  judgment,  for  in 
such  a  case  it  would  have  been  unnecessary  to  charge  that  the  serv- 
ice of  proofs  of  loss  was  essential  to  recovery.  This  newly-discovered 
cause  of  action  is  said  to  spring  out  of  the  promise,  made  at  the 
time  the  contract  was  entered  into,  that  the  defendant  would  deliver 
to  the  insured  evidence  of  the  contract  in  the  shape  of  a  policy  of 
insurance.  The  contract  was  completed  at  the  moment  the  agent 
said,  "You  are  insured  from  noon  on  the  30th  day  of  December, 
1893,  to  noon  on  the  30th  day  of  December,  1894"  (Ruggles  v.  In- 
surance Co.,  supra) ;  and  it  is  agreed  by  every  member  of  this 
court  that  the  defendant  is  liable  to  the  plaintiff  on  the  contract 
thus  made  in  the  full  amount  of  the  policy,  if  the  damage  was  sus- 
tained in  the  manner  referred  to  in  the  policy,  and  plaintiff  performed 
the  conditions  imposed  upon  him  by  it. 

But  it  is  said  that  he  may  recover  either  on  the  contract,  or  in- 
stead, if  he  elects,  on  the  ground  that  the  defendant  failed  to  de- 
liver to  him  written  evidence  of  the  contract;  i.  e.  a  policy  of  in- 
surance. If  the  case  were  one  where  the  written  evidence  of  the 
contract  had  to  come  into  the  possession  of  the  plaintiff  before  re- 
covery could  be  had  thereon,  then  it  is  true  that  an  action  in  equity 
might  be  brought,  praying  for  a  delivery  of  the  policy  that  the  de- 
fendant withheld,  and  further  demanding  that,  upon  the  policy  de- 
livered in  pursuance  of  the  decree,  the  plaintiff  should  have  judg- 
ment in  the  amount  specified  in  the  policy  for  her  damages  by  fire ; 
and  even  then  the  plaintiff  would  have  to  abide  by  the  terms  of  the 
policy,  delivery  of  which  the  judgment  should  decree.  But  that  is  not 
this  case  at  all.  To  enable  her  to  recover,  it  was  not  necessary  for 
this  plaintiff  to  have  physical  possession  of  the  policy  which  the 
agent   promised   to   give   her   assignor.     Ruggles   Case,   supra.     Her 


104  THE    MAKING    OF   THE    CONTRACT 

action  was  not  founded  upon  a  policy,  but  upon  the  contract  of  in- 
surance made  upon  the  30th  day  of  December,  which,  as  both  parties 
agreed,  was  to  begin  at  noon  on  that  day,  no  matter  when  the  policy, 
which  the  parties  intended  should  furnish  evidence  of  the  contract, 
should  be  delivered.  The  action  was  brought,  tried,  and  decided  upon 
that  theory;  and  no  one  disputes  that  the  judgment  could  in  this 
court  stand  upon  that  theory,  had  the  trial  court  charged  the  jury 
correctly  in  relation  to  the  necessity  of  serving  proofs  of  loss.  It 
is  apparent,  therefore,  that  the  plaintiff  sustained  no  damage  by 
reason  of  the  defendant's  failure  to  furnish  her  assignor  with  written 
evidence  of  the  contract.  Had  the  promise  been  kept,  the  plaintiff 
might  not  have  been  obliged  to  call  her  assignor  to  prove  the  con- 
tract, thus  subjecting  him,  as  it  turned  out,  to  be  confronted  with 
impeaching  testimony ;  but  neither  the  plaintiff  nor  her  assignor  was 
otherwise  damaged,  for  he  found  no  difficulty  in  proving  a  con- 
tract to  the  satisfaction  of  the  jury.  The  possession  of  the  promised 
policy,  therefore,  would  have  been  a  convenience  possibly,  but  nothing 
more. 

Plainly,  therefore,  it  is  not  true  that  the  plaintiff  suffered  dam- 
age in  the  amount  of  the  contract  of  insurance  by  reason  of  the 
failure  of  the  defendant  to  deliver  a  policy  reciting  the  terms  of 
the  contract  entered  into,  and  hence  the  judgment  cannot  be  affirmed 
on  the  ground  that  the  plaintiff  sustained  damages  in  the  sum  of 
$2,500,  because  the  defendant  omitted  to  deliver  a  policy.  Nor  do 
I  think  that  a  sound  public  policy  would  sanction  the  creation  of 
such  a  precedent  even  if  a  legal  principle  could  be  found  upon  which 
to  rest  it. 

The  legislature  of  the  state  of  New  York  has  prescribed  a  standard 
form  of  policy  for  the  protection  of  both  insurer  and  insured.  It 
contains  provisions  specially  protecting  the  insured  from  harsh  meth- 
ods by  insurance  companies.  On  the  other  hand,  it  provides  that 
which  experience  has  shown  to  be  necessary  in  order  to  protect  in- 
surance companies  from  being  victimized  through  fraud ;  and  among 
the  conditions  which  the  legislature,  in  its  wisdom,  has  caused  to 
be  incorporated  into  the  standard  policy  is  one  making  it  necessary 
that  the  insurer  shall  have  immediate  notice  of  the  facts  and  cir- 
cumstances of  the  fire ;  another,  that  within  60  days  the  owner  shall 
present  proofs  of  loss,  duly  verified,  in  which  shall  be  stated  the 
circumstances  of  the  fire,  and  the  value  of  the  property  destroyed, 
and  various  other  things  which  it  is  deemed  important  that  insur- 
ance companies  should  know  before  being  called  upon  to  adjust  a 
loss ;  still  another  provides  that  no  local  agent  shall  have  the  power 
to  waive  any  of  these  written  conditions,  except  by  a  writing. 

It  is  unnecessary  to  present  the  reasons  which  induced  the  legis- 
lature to  require  these  conditions  precedent  to  a  recovery  upon  a 
policy  of  insurance.  It  is  sufficient  for  our  purpose  that  the  legis- 
lature declared  that   it  should  be   so,   and  we   should  see  to  it  that 


THE  FORM  REQUIRED — ORAL  CONTRACTS  105 

the  g-eneral  trend  of  our  decisions  is  towards  the  enforcement  of  the 
legislative  command,  instead  of  its  nullification.  This  plaintiff  had 
the  right,  as  it  is  conceded  on  all  hands,  to  recover  on  the  contract 
of  insurance  which  her  assignor  made  with  the  defendant's  agent, 
whether  a  policy  was  subsequently  delivered  to  him  or  not;  but,  as 
the  standard  policy  was  necessarily  a  part  of  the  contract,  he  should 
be  required  to  comply  with  the  conditions  of  that  policy,  and  give 
notice  of  the  facts  and  circumstances  of  the  fire,  and  present  proofs 
of  loss  duly  verified. 

The  view  taken  by  some  of  my  Brethren,  however,  is  that  it  was 
unnecessary  to  give  notice  of  the  fire  and  present  proofs  of  loss 
within  60  days,  or  at  any  other  time,  because,  it  is  said,  such  an 
action  need  not  be  treated  as  on  a  contract  of  insurance,  but  on  a 
contract  to  give  a  policy,  which  has  not  been  carried  out,  and,  there- 
fore, prior  to  beginning  suit,  which  may  be  done  at  any  time  within 
six  years  instead  of  one  year,  as  provided  in  the  standard  policy, 
the  insured  has  nothing  whatever  to  do  when  he  sustains  a  loss  by 
fire  but  lie  by  until,  as  in  this  case,  several  months  have  passed,  or, 
in  some  other  case,  until  years  have  gone  by,  without  giving  the 
company  notice  of  the  fire  or  any  proofs  of  loss  whatever.  He 
may  then  bring  a  suit,  claiming  that  two  days,  or  less,  or  more, 
before  the  fire,  the  defendant's  local  agent,  without  receiving  any 
premium,  agreed  to,  but  did  not,  issue  a  policy,  for  which  defendant 
is  liable  to  plaintiff  in  the  amount  of  the  sum  for  which  it  was 
agreed  that  the  policy  should  issue.  If  such  a  procedure  should  be 
sanctioned  by  this  court,  then  might  an  insurance  company  be  mulcte'l 
in  damages  without  having  had  an  opportunity  to  investigate  promptly 
the  origin  of  the  fire  and  the  value  of  the  thing  destroyed,  and  thus 
would  the  door  be  opened  wide  for  the  perpetration  of  fraud. 

It  is  said  that,  if  the  foregoing  argument  seems  not  to  be  de- 
fective upon  its  mere  reading,  it  is,  nevertheless,  so,  because  it  leaves 
out  of  consideration  the  decisions  of  this  court  in  Ellis  v.  Insurance 
Co.,  50  N.  Y.  403,  10  Am.  Rep.  495;  Angell  v.  Insurance  Co.,  59 
N.  Y.  171,  17  Am.  Rep.  322:  Van  Loan  v.  Insurance  Co.,  90  N.  Y. 
280.  But  the  situation  which  those  cases  were  designed  to  meet  no 
longer  exists.  During  the  period  of  time  in  which  they  and  others 
were  decided,  and  down  to  the  year  1886,  each  insurance  company 
was  at  liberty  to  insert  such  provisions  in  the  policy  of  insurance 
issued  by  it  as  it  deemed  best.  The  result  was  that  there  was  no 
uniformity  in  policies  of  insurance,  and,  when  loss  by  fire  occurred 
prior  to  a  delivery  of  the  policy,  it  became  necessary  for  the  assured 
to  secure  possession  of  the  policy,  either  by  its  voluntary  delivery 
to  him  by  the  officers  of  the  company,  or  in  pursuance  of  a  decree 
in  a  suit  in  equity  for  specific  performance.  Thereon  he  could  found 
a  judgment  for  the  damages  sustained  by  the  fire,  or  he  was  allowed 
to  recover  the  damages  sustained  for  a  breach  of  the  contract, 
which  was  treated  as  a  contract  for  the  delivery  of  a  policy.     The 


106  THE   MAKING   OF   THE    CONTRACT 

last  one  of  the  cases  cited  was  decided  in  1882.  Four  years  later 
the  legislature,  by  chapter  488  of  the  Laws  of  1886,  enacted  and 
provided  for  a  uniform  policy  of  fire  insurance,  to  be  made  and 
issued  in  this  state  by  all  insurance  companies  taking  fire  risks  on 
property  within  this  state,  to  be  known  and  designated  as  the  "stand- 
ard fire  insurance  policy  of  the  state  of  New  York." 

Upon  the  passage  of  this  important  legislation  the  policy  of  in- 
surance was  no  longer  of  special  moment,  except  as  evidence  that 
a  contract  to  insure  had  been  made ;  for  it  was  no  longer  competent 
for  the  parties  to  incorporate  into  the  policy  any  provisions  whatever 
outside  of  those  embraced  within  the  terms  of  the  standard  policy, 
and  thereafter  the  contract  to  insure  was,  by  common  consent  of 
the  profession  and  the  courts,  scientifically  treated  as  a  contract  of 
insurance,  and  not,  as  formerly,  a  contract  to  issue  a  policy,  as  an 
examination  of  the  authorities  in  this  court  from  the  Ruggles  Case 
down  will  show.     *     *     *     Reversed.^ 


PHCENIX   INS.   CO.  OF   HARTFORD.   CONN.,  v.    IRELAND. 

(Court  of  Appeals  of  Kansas,  1899.     9  Kan.  App.  644,  58  Pac.  1024.) 

SCHOONOVER,  J.*^  This  is  an  action  by  C.  F.  Ireland  &  Co.  against 
the  Phoenix  Insurance  Company,  of  Hartford,  to  recover  damages 
for  a  breach  of  an  oral  contract  to  insure  the  defendants  in  error's 
stock  of  goods,  alleged  to  have  been  made  by  defendants  in  error 
with  plaintifif  in  error  through  its  agent,  I.  E.  Perley.  The  case 
was  tried  to  a  jury.  Verdict  and  judgment  for  C.  F.  Ireland  &  Co., 
plaintiffs  below.  The  insurance  company  brings  the  case  here  for 
review. 

The  admissions  of  the  parties  eliminated  from  this  case  all  minor 
matters.  The  main  question  submitted  to  the  jury  was  whether  or 
not  the  oral  contract,  as  claimed  by  plaintiff's  below,  was  entered  into. 
Upon  this  question  the  jury  found  for  the  plaintiffs.  The  facts, 
briefly  stated,  are:  The  defendants  in  error  took  out  an  insurance 
policy,  which  was  renewed  from  year  to  year;  the  local  agent  some 
times  issuing  new  policies,  and  sometimes  issuing  renewal  receipts. 
After  the  insurance  had  been  in  force  for  several  years,  the  rate 
was  increased  from  $9  to  $11.  A  new  policy  was  issued  in  de- 
fendant company,  and  the  insured  told  the  local  agent  to  take  care 
of  the  insurance, — keep  it  up, — the  same  as  he  had  hitherto  done. 
At  the  expiration  of  the  year  the  agent  forgot  to  issue  a  renewal 

5  Conditions  in  parol  contracts  of  insurance,  see,  also,  Salisbury  v.  Hekla 
Fire  Ins.  Co.,  post.  p.   111. 

6  Part  of  tlie  opinion  is  omitted. 


THE  FORM  REQUIRED— ORAL  CONTRACTS  107 

receipt,  and  a  short  time  thereafter  the  property  was  totally  destroyed 
by  fire.     The  contract  was  terminable  by  either  party  at  any  time. 

^  ^  ^ 

The  only  question  to  be  determined  is:  Was  the  oral  agreement 
made  with  the  agent  binding  upon  the  company?  Defendant  in  error 
cites  the  case  of  Trustees  of  First  Baptist  Church  v.  Brooklyn  Fire 
Ins.  Co.,  19  N.  Y.  305,  as  being  decisive  of  the  case.  Justice  Com- 
ptock,  in  delivering  the  opinion,  says : 

"The  alleged  agreement  on  which  the  suit  was  founded  was  to 
renew  a  policy  of  insurance  from  year  to  year  in  consideration  of 
a  premium  to  be  annually  paid,  either  party  being  at  liberty  to 
give  notice  at  any  time  that  the  arrangement  would  not  be  con- 
tinued. Such  an  agreement,  though  not  in  writing,  is  not  void  by 
the  statute  of  frauds,  on  the  ground  that  'by  its  terms  it  is  not  to 
be  performed  within  one  year  from  the  making  thereof.'  2  Rev. 
St.  [1st  Ed.]  p.  135,  §  2.  It  is  not  the  meaning  of  the  statute 
that  the  contract  must  be  performed  within  a  year.  If  it  can  be 
so  performed  consistently  with  the  language  in  which  the  parties 
have  expressed  themselves, — in  other  words,  if  the  obligation  of  the 
contract  is  not,  by  its  very  terms  or  necessary  construction,  to  endure 
for  a  longer  period  than  one  year, — it  is  a  valid  agreement,  although 
it  may  be  capable  of  an  indefinite  continuance.  An  agreement  which 
either  party  can  terminate  at  any  time  by  a  notice  to  the  other 
may  be  binding  so  long  as  the  notice  is  not  given,  but  it  is  not 
within  the  language  or  the  policy  of  the  statute.  Plimpton  v.  Cur- 
tiss,  15  Wend.  336;  Moore  v.  Fox,  10  Johns.  244  [6  Am.  Dec.  338]  : 
Fenton  v.  Emblers,  3  Burrows,  1278;   2  Pars.  Cont.  316,  and  note. 

"Aside  from  the  objection  just  considered,  contracts  of  insur- 
ance, whether  executory  or  importing  a  present  risk,  are  not  re- 
quired by  any  statute  to  be  in  writing;  and  we  are  therefore  next 
to  inquire  whether,  if  made  by  parol,  they  are  valid  upon  general 
principles  of  law.  A  policy  of  insurance  is  a  mercantile  contract, 
having  its  origin  in,  and  deriving  its  incidents  from,  the  usage  and 
the  laws  of  commercial  nations.  In  many  of  the  countries  of 
Europe  the  contract  is  required  to  be  in  writing  by  positive  ordi- 
nances, which  set  forth  minutely  the  circumstances,  and  the  stipu- 
lations, which  it  ought  to  express.  1  Duer,  Ins.  61.  The  same  is 
true  of  marine  insurances  in  Great  Britain,  a  written  policy  being 
required  by  the  stamp  act  (35  Geo.  III.  c.  63).  Such  is,  also,  un- 
doubtedly, the  usage  in  this  country;  and,  indeed,  the  very  term 
'policy'  imports  that  the  party  insured  holds  a  written  instrument 
to  which  that  name  has  been  given.  It  seems,  however,  that  even 
in  the  continental  countries  of  Europe,  where  formal  policies  are 
required  by  the  codes  of  public  law.  unwritten  agreements  to  insure 
will  in  some  circumstances  be  executed  by  the  courts  of  justice. 
3  Boulay  Du  Paty,  246;  2  \'alin,  20;  Pothier,  Traite  du  Contrat 
d'Assurance,  note,  96,  97. 


108  THE   MAKING   OF   THE    CONTRACT 

"In  this  state  we  have  no  positive  law  on  the  subject.  The  con- 
tract, as  I  have  said,  had  its  origin  in  mercantile  law  and  usage. 
It  has,  however,  become  so  thoroughly  incorporated  into  our  mu- 
nicipal system  that  a  distinction  which  denies  the  power  and  capacity 
of  entering  into  agreements  in  the  nature  of  insurance,  except  in 
particular  modes  and  forms,  rests  upon  no  foundation.  The  common 
law,  with  certain  exceptions,  having  regard  to  age,  mental  sound- 
ness, etc.,  concedes  to  every  person  the  general  capacity  of  entering 
into  contracts.  This  capacity  relates  to  all  subjects  alike  concerning 
which  contracts  may  be  lawfully  made ;  and  it  exists  under  no 
restraints  in  the  mode  of  contracting,  except  those  which  are  im- 
posed by  legislative  authority.  There  is  nothing  in  the  nature  of 
insurance  which  requires  written  evidence  of  the  contract.  To  deny, 
therefore,  that  parol  agreements  to  insure  are  valid,  would  be  simply 
to  affirm  the  incapacity  of  parties  to  contract  where  no  such  incapacity 
exists,  according  to  any  known  rule  of  reason  or  of  law.  The  su- 
preme court  of  the  United  States,  in  a  recent  case  in  which  the 
question  directly  arose,  has  determined  that  a  parol  agreement  to 
make  and  deliver  a  policy  of  insurance  need  not  be  in  writing. 
Commercial  Mut.  Marine  Ins.  Co.  v.  Union  Mut.  Ins.  Co.,  19  How. 
318  [15  L.  Ed.  636].  We  do  not  hesitate  to  adopt  that  conclusion, 
and  it  follows  that  the  objection  made  at  the  trial  to  the  agreement 
offered  to  be  proved,  so  far  as  interests  upon  this  ground,  cannot 
be  maintained." 

A  rehearing  was  granted  in  this  case,  and  the  last  decision  is- 
reported  in  28  N.  Y.  153,  where  the  law  applicable  to  the  facts  in 
this  case  is  approved.  As  bearing  upon  the  validity  of  this  con- 
tract, the  following  authorities  are  cited:  Insurance  Co.  v.  Shaw,  94 
U.  S.  574,  24  L.  Ed.  291 ;  Campbell  v.  Insurance  Co.,  11  Wis.  100, 
40  N.  W.  661;  Insurance  Co.  v.  Duffey,  2  Kan.  347;  King  v.  In- 
surance Co.,  58  Wis.  508,  17  N.  W.  297.  *  *  *  The  judgment 
of  the  district  court  is  affirmed. 


WIEBELER  V.  AIILWAUKEE  MECHANICS'   MUT.  INS.  CO. 

(Supreme  Court  of  Minnesota,  1SS3.     30  Minn.  464,  16  X.  W.  363.) 

GiLFiLLAN,  C.  J.  Action  on  a  contract  to  insure.  From  the  ad- 
missions in  the  pleadings  and  on  the  trial,  and  from  the  evidence, 
the  referee  was  justified  in  finding,  as  he  did  find,  that  plaintiff 
held  defendant's  policy  (about  to  expire)  insuring  his  dwelling  for 
three  years  for  the  sum  of  $250,  and  that  before  it  expired  the 
agent  of  defendant,  on  its  behalf,  agreed  orally  with  plaintiff  to 
renew  it,  increasing  the  amount  on  the  dwelling  to  $400,  and  extend- 
ing it  so  as  to  cover  the  furniture  in  the  amount  of  $250,  and  the_ 
barn  to  the  amount  of  $100.     Nothing  being  said  to  the  contrary. 


THE  FORM  REQUIRED — ORAL  CONTRACTS  109 

the  presumption  would  be  that  the  renewal  was  to  be  for  the  same 
length  of  time  and  the  same  rate  of  premium  as  in  the  original 
policy,  and  the  referee  found  the  fact  accordingly.  This  makes  a 
good  contract  to  insure  for  the  term  of  three  years. 

Defendant  claims  that  the  contract  was  within  the  statute  of  frauds 
and  void.  There  is  included  in  the  statute  "every  agreement  that  by 
its  terms  is  not  to  be  performed  within  one  year  from  the  making 
thereof."  This,  of  course,  does  not  include  an  agreement  that 
may,  in  accordance  with  its  terms,  be  fully  performed  and  ended 
within  the  year ;  as  where  the  thing  to  be  done  depends  on  a  con- 
tingency that  may  happen  within  the  time.  This  is  the  case  with 
a  contract  to  insure  where  the  insurance  is  to  commence  within  the 
year.     Judgment  affirmed. 


COMMERCIAL  FIRE  INS.  CO.  v.  MORRIS. 
(Supreme  Court  of  Alabama,  3S94.     105  Ala.  498,   18   South.  34.) 

Coleman,  J.'^  The  plaintiiTs,  Morris  &  Co.,  sued  the  defendant  up- 
on an  insurance  contract  to  recover  damages  sustained  in  the  loss  of 
drugs,  merchandise,  etc.,  destroyed  by  fire.  There  are  several  counts 
in  the  complaint,  one  or  more  counting  upon  an  agreement  to  insure, 
another  upon  a  contract  of  insurance,  and  another  upon  an  agreement 
to  renew,  and  one  upon  an  agreement  of  renewal  of  an  existing  policy 
of  insurance  alleged  to  have  been  made  a  few  days  before  the  period 
of  its  expiration.  As  this  case  must  be  reversed  for  reasons  which 
will  appear  in  the  opinion,  we  deem  it  proper  to  state  general  rules 
which  seem  to  us  to  govern  the  case,  without  considering  specifically 
and  in  detail  each  of  the  several  assignments  of  error. 

First,  we  hold  that  neither  an  agreement  to  issue  a  policy  of  insur- 
ance, nor  an  agreement  to  renew  an  existing  policy,  nor  a  contract  of 
insurance  are  within  the  statute  of  frauds,  and  such  contracts  or 
agreements  need  not  be  in  writing. 

Second,  that  a  count  which  seeks  a  recovery  upon  a  mere  agreement 
to  issue  a  policy  or  to  procure  a  policy,  or  an  agreement  to  renew  an 
existing  policy,  which  does  not  aver  a  breach  of  the  agreement,  is  de- 
fective. A  mere  allegation  that  the  defendant  agreed  to  insure,  or 
to  renew  a  policy,  followed  by  an  averment  of  the  loss  and  destruction 
of  the  property  intended  to  be  covered,  does  not  show  a  breach  of  the 
agreement.  We  are  aware  that  a  similar  count  was  held  good  in  the 
case  of  Insurance  Co.  v.  McMillan,  31  Ala.  711,  but  an  examination 
of  the  case  shows  that  the  grounds  of  the  demurrer  assigned  did  not 
specifically  raise  the  objection  we  are  considering,  and  it  was  not  pass- 
ed upon  by  the  court.     In  the  later  case  of  Insurance  Co.  v.  Adler,  71 

T  Part  of  the  opinion  is  omitted. 


110  THE    MAKING    OF   THE    CONTRACT 

Ala.  516,  the  character  of  the  complaint  is  not  stated,  but  the  prin- 
ciple is  declared  that  an  action  at  law  may  be  maintained  upon  a  parol 
agreement  to  insure,  "if  all  the  terms  of  the  contract  were  agreed  up- 
on, so  as  to  cover  the  time  of  the  loss,  and  the  breach  consisted  in  the 
failure  to  issue  the  policy  as  agreed  on."  Courts  of  equity  entertain 
bills  filed  to  enforce  specific  performance  of  parol  agreements  to  in- 
sure, which  would  be  wholly  unnecessary  if  an  agreement  to  insure 
was  in  legal  effect,  the  same  as  a  contract  of  insurance.  Having  ju- 
risdiction to  enforce  specific  performance,  upon  proper  prayer,  courts 
of  equity  administer  full  relief.  Insurance  Co.  v.  Mayes,  61  Ala.  163 ; 
Tayloe  v.  Insurance  Co.,  9  How.  390,  13  L.  Ed.  187;  Commercial 
Mut.  Ins.  Co.  V.  Union  Mut.  Ins.  Co.,  19  How.  318-321,  15  L.  Ed.  636. 

In  the  case  of  Lancaster  Mills  v.  Merchants'  Cotton-Press  Co.,  89 
Tenn.  1,  14  S.  W.  317,  24  Am.  St.  Rep.  586,— the  court  uses  this  lan- 
guage :  "A  contract  to  carry  insurance  or  to  cover  with  insurance,  as 
a  representation  to  a  depositor  that  his  deposit  is  insured,  is  very  dif- 
ferent in  its  legal  efifect  from  the  absolute  liability  of  an  insurer.  In 
the  latter  case  the  action  is  upon  the  risk  or  policy  for  the  value  of  the 
property  destroyed,  if  within  the  amount  of  the  risk.  In  the  other 
case  the  action  would  be  for  such  damages  as  resulted  from  the  breach 
of  the  obligation  to  carry  insurance.  The  measure  of  damages  may 
be  the  same."  The  demurrer  to  the  second  coimt  raised  this  question 
directly,  and  probably  the  objection  was  applicable  to  other  counts. 
The  reasoning  of  the  court  in  Tayloe  v.  Insurance  Co.,  9  How.  405, 
13  L.  Ed.  187,  is  in  direct  line  with  our  conclusion. 

The  authorities  agree  that  before  a  contract  of  insurance,  or  to  in- 
sure, is  binding,  all  the  essential  elements  and  terms  of  the  contract 
must  be  understood  and  mutually  assented  to.  A  mere  expression  of 
a  desire  by  one  intending  to  procure  insurance,  or  a  proposition  made 
to  an  insurance  agent  to  insure  property,  and  an  assent  or  acceptance 
by  the  agent  to  insure,  without  more,  would  not  amount  to  a  contract 
of  insurance  or  an  agreement  to  insure.  The  subject-matter,  period, 
rate  to  be  paid,  and  amount  of  insurance,  and  perhaps  other  elements, 
must  be  agreed  upon  expressly  or  by  implication  before  there  can  be 
an  absolute,  binding  agreement  between  the  parties,  nor  would  the 
mere  fact  that  there  had  been  previous  dealings  of  insurance  between 
the  parties,  alone,  without  some  reference  to  such  previous  dealings, 
be  sufficient  to  show  a  completed  and  binding  contract  that  the  parties 
intended  to  and  did  adopt  the  provisions  of  the  former  dealings. 
Where,  however,  there  exists  a  contract  of  insurance,  not  expired, 
and  there  is  an  agreement  between  the  parties  to  renew  the  policy, 
and  no  change  is  suggested  or  agreed  upon,  it  will  be  implied  that  the 
renewal  contract  includes  and  adopts  all  the  provisions  of  the  existing 
contract  of  insurance.  Such  a  contract  is  complete  in  all  respects,  and 
upon  failure  to  comply  with  the  agreement  the  party  oflFending  may 
be  compelled,  by  bill  in  equity,  specifically  to  perform  the  agreement, 
or  held  liable  in  a  court  of  law  for  damages  resulting  from  a  breach  of 


THE  FORM  REQUIRED — ORAL  CONTRACTS  111 

the  agreement.    31  Ala.  711;   71  Ala.  516;  61  Ala.  163;  9  How.  405. 
13  L.  Ed.  187;  89  Tenn.  1,  14  S.  W.  317,  24  Am.  St.  Rep.  586. 

Where  the  evidence  shows  that  the  parties  contracted  with  reference 
to  provisions  of  previous  dealings,  it  is  competent  to  show  the  terms 
of  such  previous  dealings,  in  order  to  arrive  at  the  intention  of  the 
parties,  and  to  ascertain  all  the  terms  of  the  contract  made ;  and, 
where  the  agreement  was  to  renew  an  existing  contract  of  insurance, 
it  was  proper  and  necessary  to  admit  in  evidence  such  existing  con- 
tract of  insurance.  Whether  or  not  there  was  a  parol  contract  to  in- 
sure, or  a  parol  contract  to  renew  or  of  renewal,  was  a  question  of 
fact  to  be  determined  by  the  jury.     *     *     *     Reversed. 


SALISBURY  V.  HEKLA  FIRE  INS.  CO.  OF  MADISON,  WIS. 

(Supreme  Court  of  Minuesota,  1884.     32  Minn.  458,  21  N.  W.  552.) 

GiLFiLLAN,  C.  J.  Defendant,  by  its  agent  at  Minneapolis,  made  or- 
ally a  contract  with  plaintiffs,  acting  by  their  agent,  insuring  plaintiffs' 
building  used  as  a  manufactory  in  the  sum  of  $150,  and  the  stock  and 
machinery  therein  in  the  sum  of  $350,  against  loss  by  fire,  for  a  premi- 
um at  the  rate  of  6  per  cent,  on  the  amount  of  insurance  for  one  year, 
the  risk  to  commence  at  once,  to-wit,  February  17,  1883 ;  a  written 
policy  to  be  made  and  delivered  as  soon  as  could  be  done.  The  premi- 
um was  not  then  paid,  and  nothing  was  said  as  to  when  it  should  be. 
On  the  night  of  February  18th,  the  manufactory  then  running,  the 
property  insured  was  destroyed  by  fire.  On  the  morning  of  the  19th, 
after  the  fire,  defendant's  agent  delivered  to  plaintiffs'  agent  a  policy 
of  insurance.  February  23d,  plaintiffs  paid  the  premium.  In  the  oral 
agreement  nothing  was  said  about  any  conditions  or  restrictions  of 
insurance.  In  the  policy  delivered  there  was  a  condition  that  it  should 
be  void  if  the  manufactory  should  run  at  night  or  overtime,  or  cease 
to  be  operated,  without  the  consent  of  defendant  indorsed  on  the 
policy. 

The  controversy  is  as  to  whether  that  condition  attached  to  the 
contract  of  insurance  under  which  the  loss  occurred.  Was  that  con- 
dition a  part  of  the  contract  existing  at  the  time  of  the  fire?  Unless 
it  was,  it  has  no  influence  on  the  rights  of  the  parties.  Whether  it 
was  or  not  must  be  determined  by  what  was  said  between  them  or 
agents  when  the  insurance  was  effected.  The  written  policy  made  out 
by  the  defendant  after  the  fire,  of  course,  cannot  be  conclusive.  In- 
deed, having  been  made  after  the  liability  accrued,  it  would  be  no  evi- 
dence of  the  contract  at  all,  were  it  not  for  its  delivery  to  and  reten- 
tion by  plaintift"s.  Such  delivery  and  retention  may  be  taken  as  an 
admission  by  plaintiffs  that  it  set  forth  the  terms  of  the  contract  as 
agreed  on,  which  might  be  rebutted  by  proof  of  what  the  contract  ac- 
tually was.     And  in  view  of  the  fact  indicated  by  the  evidence,  that 


112  THE    MAKING   OF   THE    CONTRACT 

the  plaintiffs  did  not  read  it,  it  would  not  be  very  strong  evidence,  as 
an  admission.  It  stands  on  an  entirely  different  footing  from  a  policy 
delivered  and  accepted  before  the  loss.  For  in  that  case,  if  there  be 
no  fraud  or  mistake,  the  policy  is  the  contract,  (from  the  time  of  its 
delivery,  at  any  rate,)  no  matter  what  may  have  been  the  negotiations 
which  led!  to  it,  and  proof  of  such  negotiations  is  not  admissible  to  con- 
tradict its  terms. 

This  policy  did  not  exist  and  was  not  the  contract  at  the  time  of  the 
fire,  when  defendant's  liability  accrued.  The  only  contract  then  in 
force  was  oral,  and  the  rights  of  the  parties  must  be  measured  by  it. 
Upon  an  oral  contract  of  insurance,  where  nothing  is  said  about  con- 
ditions, if  a  policy  is  to  be  issued  the  parties  are  presumed  to  intend 
that  it  shall  contain  the  conditions  usually  inserted  in  policies  of  in- 
surance in  like  cases,  or  as  have  been  before  used  by  the  parties.  That 
a  particular  condition  is  usual  must  be  shown  by  the  party  who  in- 
sists upon  it,  who  has  the  affirmative.  There  was  no  evidence  that 
such  a  condition  as  this  is  usual.    Order  affirmed.^ 


III.  Delivery 


DIBBLE  V.  NORTHERN  ASSUR.  CO.  OE  LONDON. 

(Supreme  Court  of  Michigan,  1888.     70  Mich.  1,  37  N.  W.  704,  14  Am.   St. 

Rep.  470.) 

Action  upon  a  policy  of  fire  insurance,  brought  by  James  R.  Dib- 
ble, the  assured,  against  the  Northern  Assurance  Company  of  London. 
Verdict  and  judgment  for  plaintiff,  and  defendant  brings  error. 

Sherwood,  C.  J.^°  The  defendant  is  a  corporation  organized  under 
the  laws  of  England,  doing  business  in  this  state,  in  the  county  of  Al- 
legan, at  which  place  Hollister  F.  Marsh  was,  in  December,  1885  and 
1886,  its  local  agent.  He  was  also  such  agent  for  the  Sun  Fire  Insur- 
ance Company.  The  plaintiff  lived  at  Salem,  in  Allegan  county,  where 
he  owned  a  store  building  in  which  was  a  stock  of  goods,  both  of 
which  were  insured  in  the  defendant  company.  He  also  owned  the 
two  dwelling-houses  described  in  the  policy  in  this  suit.  The  agent, 
Mr.  Marsh,  lived  at  Allegan  village,  some  14  miles  distant  from  the 
plaintiff  and  his  property,  and  was  assisted  in  his  insurance  business 
by  his  son,  Arthur  Marsh.     The  plaintiff  had  for  several  years  previ- 

8  Conditions  to  which  an  oral  contract  is  subject,  see  Hicks  v.  British 
American  Assur.  Co.,  ante,  p.  101. 

9  For  discussion  of  principles,  see  Vance  on  Insurance.  §  66.  See,  also, 
€ooley.  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  442-461. 

10  Part  of  the  opinion  is  omitted. 


DELIVERY  113 

ous  to  the  time  of  issuing-  the  poHcy  in  this  suit  placed  his  insurance 
with  Marsh,  and  had  given  Marsh,  the  agent,  authority  to  keep  his 
property  insured  in  such  companies  as  Marsh  might  select,  and  to  re- 
new his  policies  whenever  necessary  for  that  purpose. 

On  December  19,  1885,  Arthur  Marsh  was  at  Salem ;  saw  Dibble, 
who  applied  to  him  specifically  for  the  insurance  on  the  dwelling- 
houses  described  in  the  policy  in  this  suit.  The  application  was  ver- 
bal, and  the  selection  of  the  company  in  which  to  place  the  insurance 
was  left  to  the  agent,  Mr.  Marsh.  On  the  return  of  Arthur  to  Alle- 
gan, he  reported  the  application  to  the  agent,  who,  on  the  21st  day  of 
December,  in  pursuance  of  such  application,  placed  the  insurance  in 
the  Sun  Company,  entered  the  same  on  his  books  of  that  company,  and 
sent  the  policy  to  the  plaintiflt.  He  also  reported  the  policy  to  the 
company,  and  advanced  the  premium  given  him  by  Marsh.  This  pol- 
icy contained  the  following  clause :  "The  insurance  may  also  be  ter- 
minated at  any  time,  at  the  option  of  the  society,  on  giving  notice  to 
that  effect,  and  refunding  a  ratable  proportion  of  the  premium  for 
the  unexpired  term  of  the  policy." 

January  1,  1886,  the  Sun  Company  notified  Marsh,  the  agent,  to 
cancel  the  policy,  which  he  did  in  the  usual  way,  and  notified  the  plain- 
tiff of  the  fact  the  same  day  by  letter,  which  reached  Salem  the  next 
day,  which  was  Saturday ;  and  in  the  same  letter  Marsh  notified  the 
plaintiff  he  (Marsh)  had  put  the  plaintiff's  insurance  in  another  com- 
pany. At  that  time  the  plaintiff  was  absent  from  his  home.  His  clerk, 
however,  received  the  letter,  and  opened  and  read  it.  The  agent,  as 
soon  as  he  canceled  the  Sun  policy,  placed  the  risks  in  the  defendant's 
company,  issued  the  policy  in  suit,  and  placed  it  in  his  safe  for  the  plain- 
tiff ;  entered  the  policy  on  his  daily  register  of  the  company's  business, 
reported  it  to  the  defendant  company,  accompanied  by  the  premium, 
which  was  three  dollars,  using  the  returned  premium  from  the  Sun 
Company,  advanced  the  balance,  and  charged  the  same  to  the  plaintiff, 
who,  as  soon  as  he  learned  the  facts,  approved  and  ratified  all  Marsh 
had  done  for  him  in  the  premises. 

The  fire  occurred,  which  did  the  damage  to  the  buildings  insured, 
on  the  Sunday  evening  after  the  policy  was  issued.  It  is  for  this  in- 
jury the  plaintiff  brings  this  suit  against  the  defendant  under  its  pol- 
icy. The  defendant,  disavowing  its  liability  upon  the  policy,  on  IMarch 
13,  1886,  returned  the  premium  it  had  received  thereon  to  its  agent, 
Marsh,  who,  under  the  direction  of  the  company,  tendered  it  back 
to  the  plaintiff,  and  he  refused  to  accept  the  same.  If  the  plaintiff 
is  entitled  to  recover,  the  amount  is  not  disputed,  nor  is  any  question 
made  upon  the  proofs  of  loss.  The  facts  are  substantially  undisputed. 
The  plaintiff  was  allowed  to  recover  in  the  circuit,  where  a  trial  was 
had  before  Judge  Arnold  and  a  jury.     The  defendant  brings  error. 

An  inspection  of  the  record  under  the  exceptions  taken  in  receiving 
the  testimony  discloses  no  error.  The  defendant's  position  in  regard 
CooLET  Ins. — 8 


114  THE   MAKING   OF   THE    CONTRACT 

to  the  policy  in  question  is  stated  by  his  counsel  as  follows :  "The  de- 
fendant's position  in  regard  to  this  policy  may  be  briefly  stated  thus : 
(1)  The  policy  was  never  delivered.  (2)  The  policy  in  suit  was  in- 
tended to  take  the  place  of  the  Sun  fire  office  policy,  which  was  sup- 
posed to  be  canceled.  The  Sun  fire  office  policy  was  never  canceled ; 
ergo,  defendant's  policy  never  took  eft'ect.  (3)  Defendant's  policy  was 
issued  by  Marsh  acting  as  defendant's  agent,  and  was  accepted  by  him 
acting  as  plaintiff's  agent,  if  it  was  ever  accepted,  as  it  is  uncontradict- 
ed and  undisputed.  (4)  That  plaintiff  did  not  know  of  this  policy  until 
after  the  fire.  (5)  That  he  never  ordered  it  to  be  issued.  And  we 
claim  that  a  policy  of  insurance  made  by  one  person  acting  at  the  same 
time  as  agent  for  both  parties  thereto  is  void  at  the  election  of  either 
party,  unless  they  have  full  knowledge  of  how  the  same  was  made." 

We  have  no  doubt  but  tliat  the  facts  shown  upon  the  trial  were  suf- 
ficient to  establish  the  delivery  claimed  of  the  policy  in  question  to 
the  plaintiff.  The  cancellation  of  the  Sun  policy  was  sufficiently  prov- 
ed, if  the  jury  believed  the  testimony  in  the  case,  and  their  verdict  is 
against  the  defendant.  Under  the  arrangement  with  the  agent,  as  stat- 
ed by  himself,  the  consent  of  the  plaintiff  to  a  cancellation  of  the  pol- 
icy was  not  necessary.  The  selection  of  the  companies  in  which  plain- 
tiff was  to  have  his  property  kept  insured  was  placed  at  the  discre- 
tion of  the  agent.  The  plaintiff's  knowledge,  or  want  of  knowledge, 
upon  that  subject  could  not  affect  the  issue  in  this  case  under  the 
contract  the  plaintiff  claims  to  have  had  with  the  agent. 

While  Marsh  could  not  act  for  both  parties  in  making  the  contract 
of  insurance,  or  upon  any  other  matters  reb.ting  to  the  business  re- 
quiring the  concurrence  of  both  parties,  he  could  act  as  the  custodian 
of  the  policy  which  was  issued  for  the  plaintiff,  until  he  should  call 
for  it.  This  was  a  matter  in  which  the  company  had  no  interest,  and 
over  which  it  had  no  control  whatever,  and,  when  the  agent  received 
it  for  the  plaintiff  for  that  purpose,  it  was  clearly  a  delivery  by  the 
company.  From  the  day  the  agent  received  the  order  for  the  insur- 
ance until  the  property  burned,  he  had  the  direction  of  the  plaintiff  to 
issue  the  policy,  and  after  it  was  issued  and  delivered  neither  party 
could  modify  or  cancel  the  contract  without  some  special  authority  so 
to  do  from  the  other.     *     *     *     Affirmed. 


PAYMENT    OF   FIKST    PREMIUM  115 


IV.  Payment  of  First  Premium  ^^ 


UNION  CENTRAL  LIFE  INS.  CO.  v    TAGGART. 

(Supreme  Court  of  Minnesota.  1893.     55  Miuii.  95,  56  N.  W,  579,  43  Am. 

St.    liep.    474.) 

Action  on  several  promissory  notes  by  the  Union  Central  Life 
Insurance  Company  against  James  R.  Taggart.  Plaintiff  had  judg- 
ment,  and    defendant   appeals. 

Mitchell,  J.  The  notes  in  suit  were  executed  for  part  of  the 
first  year's  premium  on  a  policy  of  insurance  on  the  life  of  the 
defendant.  One  of  the  conditions  annexed  to  the  policy  was  that 
it  "shall  not  be  valid  or  binding  until  the  first  premium  is  paid  to 
the  company  or  its  authorized  agent." 

The  main  contention  of  the  defendant,  and  the  only  one  we  deem 
it  necessary  to  consider,  is  that  there  was  an  entire  want  of  con- 
sideration for  the  notes,  for  the  reason  that,  under  the  condition 
quoted,  the  policy  never  became  operative,  because  the  first  year's 
premium  had  not  been  paid  in  cash.  There  is  clearly  nothing  in 
this  point.  It  is  usually  provided  that  the  policy,  though  delivered, 
shall  not  be  binding  until  the  premium  is  paid ;  and,  where  this  is 
the  case,  the  policy  does  not  take  effect,  even  though  delivered,  until 
the  provision  is  complied  with.  But  the  mode  of  payment  of  the 
premium  is  immaterial  if  it  be  accepted  by  the  company  or  its  agent, 
and  no  special  mode  be  provided  for  in  the  policy.  The  policy  was 
silent  as  to  the  mode  of  payment.  It  was  delivered  with  a  receipt 
for  the  first  year's  premium  attached,  countersigned  by  the  com- 
pany's agent,  who  accepted  defendant's  notes  for  part  of  it.  On 
this  state  of  facts,  even  in  the  absence  of  any  express  agreement  to 
that  eft'ect,  the  company  must,  in  judgment  of  law,  be  deemed  to 
have  accepted  the  notes  in  payment  of  the  premium.  See  Tayloe 
V.  Insurance  Co.,  9  How.  39CM02,  13  L.  Ed.  187. 

This  constituted  a  consideration  for  the  notes.  There  is  no  other 
point  in  the  case  worthy  of  any  special  consideration.     Order  affirmed. 

11  For  discussion  of  principles,  see  Vance  on  Insurance,  §  67.     See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  461-496. 
Payment  of  premiums  under  conditions  of  policy,  see  post,  pp.  13S,  189. 


116  THE    MAKING    OF   THE    CONTRACT 


TOMSECEK  V.  TRAVELERS'  INS.  CO. 

{Supreme  Court  of  Wisconsin,  1902.     113  Wis.  114.  88  N.  W.  101.3,  57  L.  R. 

A.  455,  90  Am.  St.  Rep.  846.) 

Action  by  Josephine  Tomsecek  and  others  ag-ainst  the  Travelers' 
Insurance  Company.  Appeal  from  a  judgment  in  favor  of  plaintiffs. 
The  defense  was  noncompliance  with  the  following  condition  of  the 
insurance  contract:  "All  premiums  are  payable  at  the  home  office 
in  Hartford,  Connecticut,  but  will  be  accepted  if  paid  to  an  agent 
in  exchange  for  a  receipt  signed  by  its  president  or  secretary  and 
countersigned  by  the  agent  designated  thereon.  This  policy  shall 
not  take  effect  unless  the  first  premium  is  paid  while  the  insured  is 
in  good  health." 

The  evidence  was  to  the  following  efifect:  Maurice  M.  Enright 
and  Vincent  J.  Tomsecek  were  copartners  in  the  business  of  running 
a  meat  market  at  the  time  the  policy  was  issued.  By  the  consent  of 
Enright,  Tomsecek  and  one  Webb,  agent  for  the  defendant  com- 
pany, agreed  that  Tomsecek  should  take  out  a  policy  of  life  insur- 
ance in  such  company,  paying  the  first  premium  by  giving  such 
agent  credit  on  account  at  the  meat  market,  as  payment  for  meat 
furnished  and  to  be  furnished,  to  the  extent  thereof.  An  application 
was  accordingly  made  to  the  company  in  due  form,  no  mention  being 
made  of  the  agreement  aforesaid.  The  application  was  accepted  and 
a  policy  containing  the  condition  before  mentioned  was  forwarded 
to  the  agent  for  delivery,  who  sent  it  to  Tomsecek  by  mail,  not 
knowing  that  the  latter  was  ill.  Tomsecek  was  then  in  a  hospital, 
too  ill  to  do  business.  The  policy  was  received  at  the  place  of  busi- 
ness of  Enright  &  Tomsecek,  but  was  never  brought  to  the  latter's 
knowledge.  It  remained  under  seal  as  taken  from  the  post  office 
till  after  he  died.  That  occurred  soon  after  the  policy  was  received. 
No  credit  for  the  first  payment  on  the  policy  was  ever  given  to  the 
agent  as  agreed  upon,  nor  was  such  premium  ever  paid  in  any  way. 

The  court  excluded  all  evidence  as  to  whether  the  agent  had  au- 
thority to  accept  anything  in  payment  of  the  first  premium  upon 
Ihe  policy  except  money,  upon  the  theory  that  the  controversy  in 
that  regard  was  to  be  solved  solely  by  the  writings.  It  was  in  efifect 
admitted  by  plaintiffs'  counsel  on  the  trial  that  no  payment  was  made 
on  the  policy  in  money  or  otherwise,  unless  the  agreement  in  regard 
to  payment  being  made  by  credit  to  the  agent  at  the  meat  market 
operated  as  payment. 

Marshall,  J.^"  *  *  *  ^^^iq  learned  trial  court  rightly  decided 
that  if  the  agreement  between  Tomsecek  and  appellant's  agent,  that 
the  first  premium  on  the  policy  might  be  paid  otherwise  than  in 
money,  and  the  delivery  of  the  policy  pursuant  to  such  agreement, 

12  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


PAYMENT   OF    FIRST   PREMIUM  11 T 

constituted  a  waiver  by  the  company  of  payment  of  such  premium 
and  of  the  condition  that  the  policy  should  not  take  effect  unless 
such  payment  should  be  made  while  Tomsecek  was  in  good  health, 
then  the  policy  took  effect  before  Tomsecek  died  and  plaintiffs  were 
entitled  to  recover;  otherwise  appellant  is  entitled  to  judgment. 
Was  the  decision  of  that  question  in  respondents'  favor  right." 
That  is  the  proposition  upon  which  this  appeal  turns. 

Many  authorities  are  cited  to  our  attention  to  the  effect  that  pos- 
session of   a  policy  by  the  assured  at  the  time  of  his   death  prima 
facie   establishes   all  conditions  necessary  to  its  having  taken  effect 
as  a   binding   insurance   contract   in   his   lifetime,   notwithstanding   it 
contains    a   stipulation   that   it   shall   not  take   effect    unless   the   first 
premium   is  paid  while  the  assured  is  in  good  health;    that  if  such 
payment  was  not  in  fact  made,  a  waiver  thereof  will  be  presumed 
in  the  absence  of  evidence  to  the  contrary.     Some  of  such  authorities 
hold  to  rather  an  extreme  doctrine  when  applied  to  a  policy  which 
does  not  contain  a  receipt  for  payment  of  the  first  premium  and  in- 
dicates that  an  independent  instrument,  evidencing  such  payment,  is 
to  be  delivered  to  the   assured  upon   such  payment  being  made,   as 
in  this  case.     To  that  extent  they  are  not  in  harmony  with  AIcDonald 
V.  Society,  108  Wis.  213,  84  N.  W.  154,  81  Am.  St.  Rep.  885,  and 
do  not  meet  with  our  approval.     The  trial  court  applied  the  doctrine 
of  such  authorities  to  this  case,  and  in  that,  as  it  seems,  committed 
error.      The   court   w^ent    further,    not   only   holding    that    the    agent 
waived    and    had    implied    authority    to   waive    payment   of    the    first 
premium  while  the  applicant  for  insurance  was  in  good  health,  but 
waived   and   had   authority   to  waive   payment   of    such   premium   in 
money  and  to  make  an   agreement,  binding  on   appellant,  that  pay- 
ment  might   be   made   by  applying  the   amount  of   the   premium  on 
the  agent's   indebtedness   for  meat  and  as  a   credit  entitling  him  to 
further   delivery   of   meat.      The    principle    is    familiar   that   the    au- 
thority of  an  agent  as  to  waiving  conditions  of  an  insurance  policy 
before  it  takes  effect  is  pretty  broad,  but  it  does  not  go  beyond  his 
actual    authority    and    that    reasonably    implied    from    the    nature    of 
the   business   carried   on.      The   rule   in   that   regard   is   the   same    in 
respect  to  an  agent  for  an  insurance  company  as  any  other.     There 
is  no  claim  that  the  agent  had  actual  authority  to  make  the  agree- 
ment  found  by  the   jury,   so  his   authority  in  that   regard   must  be 
tested  wholly  by  what  may  be  reasonably  implied.     It  may  be  admitted 
that  Webb  was  a  general  agent,  and  still  the  difficulty  is  not  lessened, 
because  it  cannot  be  implied  that  he  had  any  authority  in  excess  of 
the  power  of   the  corporation,   and   it  must  be   presumed   that   such 
power  did  not  include  the  issue  of  policies  of  life  insurance  for  any- 
thing but  money. 

Several  cases  are  cited  to  our  attention  to  sustain  the  decision 
that  an  agent  may  waive  the  conditions  of  an  insurance  policy  calling 
for  payment  of  the  first  premium   in  money,   but  none  of  them  fit 


118  THE   MAKING    OF   THE    CONTRACT 

the  facts  of  this  case.  The  nearest  approach  to  a  situation  similar 
to  the  one  under  consideration  is  that  involved  in  Insurance  Co.  v. 
Schlink,  175  111.  284,  51  N.  E.  795.  There  the  agent  agreed  to  waive 
payment  in  money  of  a  part  of  the  first  premium,  such  part  not 
exceeding  the  amount  allowed  to  him  as  his  commission.  The  policy 
was  sustained  upon  the  ground  that  payment  of  the  full  amount 
going  to  the  company  was  made  in  money,  the  court  inferentially 
holding  that  the  agent  had  no  authority  to  waive  payment  thereof. 
The  decision  followed  Insurance  Co.  v.  Ward,  90  111.  545,  where 
the  agent  agreed  to  take  part  payment  of  the  first  premium  out 
of  the  assured's  saloon.  In  respect  to  the  defense  of  nonpayment 
of  the  first  premium  in  money,  the  court  said :  "As  the  amount 
paid  in  cash  was  more  than  enough  to  pay  the  premium  on  this 
policy,  we  see  no  ground  for  holding  that  the  premium  was  not 
all  paid  in  cash."  The  agent  "was  entitled  to  commissions  for  pro- 
curing the  insurance,  and  if  he  saw  proper  to  take  out  his  com- 
missions in  the  saloon,  we  know  of  no  reason  or  authority  to  debar 
him  from  doing  so." 

So  many  loose  expressions  are  found  in  text-books  and  legal 
opinions  as  well,  as  to  the  power  of  a  general  agent  of  an  insurance 
company  to  waive  the  conditions  of  a  policy  calling  for  payment 
of  premiums  in  money,  that  it  is  not  to  be  wondered  at  that  attor- 
neys and  courts  as  well  sometimes  go  astray.  A  careful  analysis  of 
the  authorities  will  show  that  with  few  exceptions,  which  are  not 
of  sufficient  significance  to  be  followed,  the  idea,  that  the  agent  of 
an  insurance  company  has  implied  authority  to  waive  payment  of 
premiums  on  an  insurance  policy  in  money  and  agree  to  take  some- 
thing in  lieu  thereof  which  is  neither  money  nor  an  agreement  to 
pay  money,  nor  an  equivalent  to  money  to  the  insurance  company 
when  taken,  has  no  support.  In  May,  Ins.  §  360d,  it  is  said :  "An 
agent  authorized  to  deliver  policies  and  receive  payment  may  waive 
the  payment  of  the  premium  in  cash  notwithstanding  a  stipulation 
in  the  policy  to  the  contrary,"  citing  Insurance  Co.  v.  Gilman,  112 
Ind.  7,  13  N.  E.  118. 

In  that  case  the  agent  agreed  to  receive  credit  on  his  own  debt 
to  the  assured  for  the  amount  of  the  first  premium  and  to  pay  the 
insurance  company  the  amount  thereof,  which  agreement  was  fully 
carried  out,  the  company  actually  receiving  payment  in  money.  The 
decision  was  grounded  on  the  fact  that  the  company  received  cash 
for  the  first  premium,  substantially  according  to  the  contract.  The 
court  said:  "We  are  not  recjuired  to  decide  what  the  rights  of 
the  parties  would  have  been  in  case  *  *  *  the  agent  had  failed 
to  give  the  company  credit  and  remit  in  the  usual  course."  How- 
ever, the  court  quoted,  without  explanation  or  qualification,  and  in 
a  way  to  lead  one  astray  if  he  fails  to  examine  the  supporting  au- 
thorities, from  section  360  of  May,  Ins.,  this  language:  "If  the 
agent  be  authorized  to  receive  the  premium,  an  agreement  between 


PAYMENT   OF    FIRST    PREMIUM  119 

the  assured  and  the  agent  that  the  latter  will  be  responsible  to  the 
company  for  the  amount,  and  hold  the  assured  as  his  personal  debtor 
therefor,  is  a  waiver  of  the  stipulation  in  the  policy  that  it  shall 
not  be  binding  until  the  premium  is  received  by  the  company  or 
its  accredited  agent,"  citing  Sheldon  v.  Insurance  Co.,  25  Conn.  207, 
65  Am.  Dec.  565;  Insurance  Co.  v.  Curtis,  32  Mich.  402;  Willcuts 
V.  Insurance  Co.,  81  Ind.  300,  309. 

The  text  in  May  is  supported  by  Sheldon  v.  Insurance  Co.,  supra, 
and  Insurance  Co.  v.  Booker,  9  Heisk.  (Tenn.)  606,  24  Am.  Rep.  344. 
In   the    last    case   mentioned    the   agreement   was   to   the    effect   that 
the  agent  should   give  the  assured  time  to   make  the  first  payment 
There  was  no  waiver  of  payment  in  money.     In   Sheldon  v.   Insur- 
ance  Co.,   the   facts   were  that  the  agent  agreed   to   give   the  appli- 
cant time  to  make  payment  of  the  first  premium,  to  take  his  note, 
payable  to  the  company  on  short  time  for  one  half  thereof,  and  his 
promise  to   pay  such  agent  the  other  half,  and  to  personally  make 
the    cash    payment    to    the    company.      It    was    the    custom    between 
the  company  and  the  agent  to  charge  the  amount  of  the  first  premium 
to  the  latter  upon   forwarding  to  him  the  policy   for  delivery,   and 
for  the  agent  to  make  settlements  with  the  company   from  time  to 
time,   and   to   remit   money   on   account.      There   was   no   waiver   of 
the  payment  in  money,  only  a  waiver  of  the  time  of  payment.     In 
Insurance    Co.    v.    Curtis,    the    agent    advanced    the    money    for    the 
assured    for   the  first  premium,   actually  paying   it  to   the   company, 
and    it    was   held    that   there    was    a    sufficient    compliance    with    the 
provision  of  the   policy  requiring  payment  of  the  first  premium   as 
a  condition  of  the  policy  going  into  effect.     In  Willcuts  v.  Insurance 
Co.  the  facts  were  that  the  policy  was  issued  to  one  of  the  medical 
examiners  of  the  company  and  it  was  agreed  between  him  and  the 
agent  that  the  dues  to  the  applicant  for  services  as  medical  examiner 
niight  be  applied   on  the  premiums.     It  was  held   that   such   agree- 
ment was  binding  on  the  company  as  to  services  actually  rendered 
before  the  premium  became  due,  because,  to  that  extent,  it  dia  not 
really  constitute  a  waiver  of  payment  in  money,  as  the  amount  due 
to  the  examiner  from  the  company   was  equivalent  to   it  to  a  cash 
payment  to  that  extent. 

Enough  has  been  said  to  indicate  the  character  of  the  authorities 
relied  upon  to  show  that  a  general  agent  of  an  insurance  comjiany 
has  implied  authority  to  waive  the  provision  of  an  insurance  policy 
calling  for  payment  of  the  first  premium  in  money.  None  of  them 
go  to  the  extent  of  holding  that  the  agent  may  waive  such  payment 
and  take  something  in  lieu  thereof  which  does  not  amount  to  pay- 
ment to  the  corporation  in  cash,  such  as  an  agreement  on  the  part 
of  the  agent  to  take  pay  for  a  premium  in  meat,  no  credit  being 
given  or  payment  actually  made  to  the  agent,  or  credit  being  given 
by  him  to  the  corporation  in  the  usual  course  of  business. 


120  THE    MAKING   OF   THE    CONTRACT 

The  precise  question  we  have  here  was  decided  in  Hoffman  v. 
Insurance  Co.,  92  U.  S.  161,  23  L.  Ed.  539.  There  the  first  pre- 
mium was  paid  to  a  local  or  special  agent,  by  consent  of  the  general 
agent  of  the  company,  in  a  horse,  the  cancellation  of  an  indebtedness 
of  the  special  agent  to  the  applicant  for  insurance,  a  note  to  such 
agent  and  a  note  to  the  corporation.  The  transaction  was  held  void. 
Swayne,  J.,  who  delivered  the  opinion  of  the  court,  saying:  "It 
is  an  elementary  principle,  applicable  alike  to  all  kinds  of  agency, 
that  whatever  an  agent  does  can  be  done  only  in  the  way  usual  in 
the  line  of  business  in  which  he  is  acting;"'  and  the  implication  to 
that  effect  "is  present  whenever  his  authority  is  called  into  activity, 
and  prescribes  the  manner  as  well  as  the  limit  of  its  exercise." 

It  was  further  said,  in  effect,  that  as  life  insurance  is  a  cash 
business,  the  agent  of  an  insurance  company,  whether  he  be  a  gen- 
eral or  a  special  agent,  has  no  implied  authority  to  take  or  agree 
to  take  personal  property,  such  as  a  horse,  in  payment  of  a  premium 
upon  an  insurance  policy ;  that  such  an  agreement,  even  if  made 
by  the  company  itself,  would  be  ultra  vires,  and  if  made  by  an  agent 
without  the  knowledge  of  the  company  it  would  not  only  be  ultra 
vires  but  a  fraud  both  upon  the  part  of  the  agent  and  the  appli- 
cant for  insurance,  for  the  latter  must  be  presumed  to  know  that 
an  insurance  premium  cannot  be  legitimately  paid  in  horses. 

It  would  seem  that  nothing  further  need  be  said  to  show  that 
the  policy  in  question  never  became  binding  upon  appellant.  The 
jury  found  that  the  agent  agreed  to  accept  his  own  indebtedness 
for  meat  as  part  payment  for  the  first  premium  and  to  take  meat 
for  the  balance  thereof.  It  is  undisputed  that  such  agreement  was 
never  carried  out  by  the  insured  so  as  to  obligate  the  agent  to  pay 
the  company.  Neither  the  company  nor  the  agent  received  pay 
for  the  first  premium.  There  is  no  analogy  between  this  case  and 
one  where  the  agent  merely  agrees  to  give  the  applicant  for  insur- 
ance time  to  make  the  first  payment,  or  agrees  that  he  will  ad- 
vance the  amount  of  the  first  payment  himself,  and  actually  does 
advance  it,  or  agrees  to  charge  himself  with  the  first  premium  in 
his  account  with  the  company,  according  to  a  custom  of  doing  busi- 
ness between  himself  and  his  principal,  thereby  becoming  liable  to 
the  company.  We  must  hold  here  that  the  agent  had  no  implied 
authority  to  use  the  appellant's  policy  of  insurance  to  pay  his  meat 
bills  or  to  build  up  a  credit  for  future  purchases  of  meat.  There 
are  no  circumstances  disclosed  in  the  evidence  to  avoid  the  effect 
of  that  conclusion.     *     *     *     Reversed. ^^ 

13  Power  of  agent  to  waive  conditions  of  the  policy,  see  post,  p.  243. 


PAYMENT   OF   FIRST   PREMIUM  121 


FARNUM  V.   PHENIX   INS.  CO. 

(Supreme  Court  of  California.  1^90.     83  Cal.  246,  23  Pac.  869,  17  Am.   St. 

Rep.  233.) 

Action  by  N.  C.  Farnum  and  others  against  the  Phenix  Insurance 
Company.  There  was  a  judgment  of  nonsuit,  and  plaintiffs  appeal. 
On  May  2,  1887,  the  plaintiffs  applied  verbally  to  the  defendant's 
agent  at  Stockton,  Cal.,  for  a  policy  of  insurance  on  certain  buildings. 
A  policy  was  issued  insuring  the  buildings  for  five  years  from  May 
1,  1887.  A  loss  occurred  under  the  policy  September  5,  1887.  At 
the  time  of  the  fire  and  loss  no  part  of  the  premium  had  been  actual- 
ly paid,  but  it  was  in  evidence  that  the  local  agent  of  the  defendant, 
at  the  time  the  policy  was  issued  and  delivered,  verbally  agreed  and 
promised  to  give  the  plaintiffs  a  credit  on  the  premium  until  October 
1,  1887,  and  that  the  policy  was  taken  by  plaintiffs  with  that  under- 
standing, and  upon  that  condition,  though  the  agreement  for  such 
credit  was  not  indorsed  in  writing  upon  the  policy.  The  policy  was 
countersigned  by  the  local  agent,  and  delivered  to  plaintiff's,  on  May 
24,  1887.  It  was  admitted  that  it  was  the  custom  of  defendant  to  al- 
low its  agents  to  give  credit  for  premiums  for  the  term  60  days  ;  and 
it  was  proved  that  the  local  agent  was,  by  virtue  of  his  appointment, 
made  responsible  for  the  collection  of  all  premiums  on  policies  issued 
by  him. 

On  June  25,  1887,  the  local  agent  mailed  to  plaintiffs  a  written  no- 
tice stating  that  "the  premium  on  policy  No.  73,143,  on  barn,  tank, 
etc.,  $1,200.  amounting  to  $73.50  on  five-years  policy,  falls  due  on  the 
1st  of  July,"  and  inclosed  in  the  same  envelope  was  a  notice  that,  "un- 
less the  premium  thereon  shall  be  paid  on  or  before  12  o'clock  noon 
of  July  1,  1887,  we  shall  cancel  the  insurance  under  said  policy  on  our 
books,  for  non-payment  of  premium,  without  further  notice,  and  ter- 
minate our  liability  thereunder  from  that  date."  Neither  of  the  plain- 
tiffs actually  received  said  notice.  At  the  expiration  of  the  time  named 
in  the  notice,  the  premium  being  still  unpaid,  the  general  agents  of 
defendant  at  San  Francisco  made  an  entry  in  the  books  in  their  of- 
fice to  the  eff'ect  that  the  policy  was  canceled,  but  no  notice  of  the 
cancellation  was  given  to  either  of  the  plaintiffs.  On  September  30, 
1887,  plaintiffs  tendered  to  the  local  agent  of  defendant  the  full 
amount  of  the  premium,  which  he  refused  to  receive.  The  policy  re- 
cites a  consideration  of  $73.50,  but  does  not  expressly  acknowledge 
receipt  of  payment.    It  contains  the  usual  conditions  of  fire  policies. 

The  following  clauses  are  the  only  ones  relevant  to  the  points  to  be 
considered :  "The  company  shall  not  be  liable  by  virtue  of  this  policy, 
or  any  renewal  thereof,  until  the  premium  therefor  be  actually  paid." 
"The  use  of  general  terms,  or  anything  less  than  a  distinct  specific 
agreement,  clearly  expressed,  and  indorsed  on  this  policy,  shall  not 
be  construed  as  a  waiver  of  any  printed  or  written  condition  or  re- 


122  THE  MAKING  OF  THE  CONTRACT 

striction  herein."  "The  insurance  may  be  terminated  at  any  time,  at 
the  option  of  the  company,  on  giving  notice  to  that  effect,  and  refund- 
ing a  ratable  proportion  of  the  premium  for  the  unexpired  term  of  the 

pohcy." 

VancliEP,  C*     *     *     *     The  defendant  contends  that  there  is  no 
Habihty  upon  the  pohcy,  because  the  premium  was  not  actually  paid 
before  the  loss,  and  because  the  agreement  for  credit  was  not  indorsed 
in  writing  upon  the  policy.    It  seems  to  be  settled  by  a  controlling  pre- 
ponderance of  authority  that  an  express  provision  in  a  policy  of  in- 
surance that  the  company  shall  not  be  liable  on  the  policy  until  the 
premium  be  actually  paid,  is  waived  by  the  unconditional  delivery  of 
the  policy  to  the  assured  as  a  completed  and  executed  contract,  under 
an  express  or  implied  agreement  that  a  credit  shall  be  given  for  the 
premium ;   and  that  in  such  case  the  company  is  liable  for  a  loss  which 
may  occur  during  the  period  of  the  credit.     Boehen  v.  Insurance  Co., 
3S  N  Y  131,  90  Am.  Dec.  787;  Wood  v.  Insurance  Co.,  32  N.  Y.  619; 
Goit  V.  Insurance  Co.,  25  Barb.   (N.  Y.)    190:     *     *     *     Church  v. 
Insurance  Co.,  66  N.  Y.  222 ;     *     *     *     Latoix  v.  Insurance  Co.,  27 
La.  Ann.  113;     *     *     *     Heaton  v.  Insurance  Co.,  7  R.  I.  506;   Ea- 
gan  V.  Insurance  Co.,  10  W.  Va.  583  ;**=!=     O'Brien  v.   Insur- 
ance Co.  (C.  C.)  22  Fed.  586;   Tennant  v.  Insurance  Co.  (C.  C.)  31 
Fed.  322 ;    Insurance  Co.  v.  Norton,  96  U.  S.  234,  24  L.  Ed.  689 ; 
Young  V.  Insurance  Co.,  45  Iowa,  378,  24  Am.  Rep.  784 :  Wagon  Co. 
V.  Insurance  Co.  (C.  C.)  20  Fed.  232;   Post  v.  Insurance  Co.,  43  Barb. 
(N.  Y.)  351 ;  Van  Schoick  v.  Insurance  Co.,  68  N.  Y.  440. 

The  reason  for  this  rule  is  well  expressed  in  the  case  last  above 
cited,  as  follows:    "The  fact  that  the  insurer  delivered  to  the  insur- 
ed the  written  contract  as  the  consummated  agreement  between  them, 
and  did  not  then  exact  present  payment  of  the  premium,  as  a  neces- 
sary precedent  to  delivery,  was  too  plainly  in  contradiction  with  the 
condition  for  prepayment  for  it  to  be  supposed  that  it  was  meant  by 
the  insurer,  or  supposed  by  either  party,  that  it  was  intended  to  make 
that  condition  a  potent  part  of  the  contract.     *     *     *     It  would  be 
imputing,  a  fraudulent  intent  to  the  defendant  in  this  case  to  say  or 
to  think  that  they  did  not  mean,  when  they  delivered  this  policy  to 
the  plaintiff,  to  give  him  a  valid  and  binding  contract  of  insurance, 
or  that  they  did  not  mean  that  he  should  believe  that  he  had  one,  or 
that  they  did  not  suppose  that  he  did  so  believe."     In  Insurance  Co. 
V.  McCrea,  8  Lea  (Tenn.)  520,  41  Am.  Rep.  647,  it  is  said:   "It  seems 
to  be  well  settled  that,  when  a  contract  of  insurance  is  executed  with 
a  full  knowledge  of  an  existing  fact  which  would  render  it  void  un- 
der  a    condition   precedent    embodied    therein,    the   condition   or    its 
breach  will  be  considered  as  waived,  because  otherwise  it  would  be  an 
unmeaning    form,     the  only  effect  of  which  would  be  to  deceive  and 
defraud." 

14  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


PAYMENT   OF    FIRST   PREMIUM  123 

In  Tennant  v.  Insurance  Co.,  supra,  Ross.  J.,  holds  that  an  exten- 
sion of  credit  for  an  insurance  premium  pursuant  to  custom,  by  an 
agent  having  power  to  countersign  a  renewal  receipt  upon  a  life-pol- 
icy, made  the  renewal  of  the  policy  binding  in  favor  of  the  assured, 
notwithstanding  the  terms  of  the  policy  making  the  actual  payment 
of  the  premium  a  condition  precedent  to  the  binding  force  of  the  re- 
newal, and  notwithstanding  the  death  of  the  insured  before  the  pay- 
ment of  the  premium,  and  assigns  as  the  reason  for  so  holding  that 
"it  would  manifestly  operate  as  a  fraud  upon  him  to  hold  that  the 
insurance  did  not  become  operative  until  the  premium  was  actually 
paid."  It  should  also  be  remarked  that  it  would  be  manifestly  un- 
just for  an  insurance  company,  which  extends  the  time  for  the  pay- 
ment of  the  premium  upon  an  executed  and  delivered  policy,  to  charge 
the  full  amount  of  premium  upon  the  risk  for  the  entire  period  cov- 
ered by  the  policy,  and  to  accept  such  full  amount  at  the  expiration 
of  that  period  if  no  loss  occurred  meanwhile,  and  yet  to  deny  the 
validity  of  the  policy,  and  its  liability  upon  it  during  the  period  of 
credit,  in  case  a  loss  should  occur  during  that  period. 

In  this  case  the  local  agent  of  defendant  at  Stockton  had  unques- 
tionable power  to  extend  a  credit  upon  the  premium  for  the  period  of 
at  least  60  days.  He  represented  the  full  power  of  the  company  to 
make  a  consummated  and  binding  contract  of  insurance  by  counter- 
signing and  delivering  the  policy;  and  when  he  countersigned  and 
delivered  it  unconditionally  as  a  completed  contract,  under  a  specific 
agreement  for  payment  of  the  premium  at  a  future  date,  he  thereby 
waived,  to  the  full  extent  to  which  the  company  itself  could  then  have 
waived,  the  actual  payment  of  the  premium  as  a  condition  precedent 
to  its  liability  on  the  policy.  "An  insurance  agent,  clothed  with  au- 
thority to  make  contracts  of  insurance  or  to  issue  policies,  stands  in 
the  stead  of  the  company  to  the  assured."  Rivara  v.  Insurance  Co., 
62  Miss.  728. 

In  Insurance  Co.  v.  Block,  109  Pa.  538,  1  Atl.  523,  it  was  held  that 
the  counter-signature  of  an  authorized  agent  upon  a  policy  which  is 
unconditionally  delivered  by  him  to  the  insured,  and  which,  by  its 
terms,  requires  such  counter-signing  to  make  it  valid,  is  a  virtual  ac- 
knowledgment of  the  receipt  of  premium,  and  estops  the  company  to 
deny  the  validity  of  the  policy,  upon  the  ground  that  the  premium 
was  not  actually  received  by  the  officers  of  the  company. 

The  policy  in  this  case  does  not  formally  express  receipt  of  premi- 
um, but  it  recites  a  consideration  of  $73.50  for  the  contract  of  in- 
surance, and  declares  that  the  policy  shall  not  be  binding  until  counter- 
signed by  the  agent  at  Stockton,  and  thus  impliedly  authorizes  him  to 
consummate  a  binding  contract  of  insurance  for  the  consideration 
expressed.  If  the  policy  had  contained  a  formal  receipt  of  premium, 
its  unconditional  delivery  would  have  been  conclusive  evidence  of  pay- 
ment, so  as  to  have  estopped  the  defendant  from  denying  the  validi- 
ty of  the  policy,   notwithstanding  the  declaration  in  it  that  it  shall 


124  THE   MAKING    OF   THE    CONTRACT 

not  be  binding  until  the  premium  is  actually  paid  (Civil  Code,  §  2o98 : 
Basch  V.  Insurance  Co.,  35  N.  J.  Law,  429 ;  Insurance  Co.  v.  FennelL 
49  111.  180)  ;  and  upon  principle  the  same  result  should  follow  where 
the  policy  is  delivered  as  a  valid  and  completed  contract,  upon  a  con- 
sideration expressed  therein,  the  receipt  of  which  is  impliedly  ac- 
knowledged, an  authorized  credit  having  been  agreed  upon  as  an 
equivalent  and  substitute  for  cash  payment.  The  promise  to  pay  the 
premium  at  a  future  time  was  a  sufficient  consideration  for  the  con- 
tract to  insure,  as  there  can  be  no  question  that  the  promise  to  pay  at 
a  future  day  was  binding  on  the  plaintiffs,  and  could  have  been  en- 
forced by  the  defendant. 

It  is  no  answer  to  this  to  say  that  the  Stockton  agent  was  not  au- 
thorized to  give  so  long  a  credit  as  that  given  in  this  case, — from 
May  2  to  October  1,  1887,— but  was  limited  to  a  credit  of  60  days; 
for  it  is  sufficient  that  he  had  authority  to  give  a  credit  of  60  days. 
The  credit  given  was  a  valid  credit  for  60  days,  at  least,  and  the  giv- 
ing of  any  credit  by  authority  of  the  company  was  a  waiver  of  actual 
payment  as  a  condition  precedent  to  the  liability  of  the  company.  The 
only  remedy  of  the  company  thereafter  was  to  rescind  or  to  cancel 
the  policy  for  non-payment  of  the  premium  within  the  60  days,  upon 
personal  notice  to  the  plaintiff's,  which  the  bill  of  exceptions  shows 
was  not  received  by  either  of  the  plaintiffs.  When  credit  is  given  by 
an  insurance  company  it  has  no  right  to  cancel  the  policy  for  non- 
payment of  premium,  except  after  putting  the  insured  in  default  (La- 
toix  V.  Insurance  Co.,  27  La.  Ann.  113),  and  personal  notice  of  in- 
tended cancellation  must  be  given  to  the  insured  (Insurance  Co.  v. 
Turnbull,  86  Ky.  230,  5  S.  W.  542).  If  the  notice  is  sent  by  mail, 
and  not  received,  as  in  this  case,  the  cancellation  for  non-payment  of 
premium  is  ineffective.  Mullen  v  Insurance  Co.,  121  Mass.  171. 
*     *     * 

Again,  the  local  agent  at  Stockton,  being  clothed  with  general 
power  to  receive  proposals  for  insurance  and  to  countersign  and  de- 
liver policies  in  San  Joaquin  county,  is  presumed  to  have  the  power 
of  the  company  within  that  county  to  waive  the  immediate  payment 
of  premiums,  and  to  make  contracts  for  credit.  Wagon  Co.  v.  In- 
surance Co.  (C.  C.)  20  Fed.  232;  Post  v.  Insurance  Co.,  43  Barb. 
(N.  Y.)  351.  Whether  an  agent  has  general  or  only  particular  pow- 
ers is  not  determined  by  simply  calling  him  a  local  agent.  Murphy  v. 
Insurance  Co.,  3  Baxt.  (Tenn.)  448,  27  Am.  Rep.  761.  An  agent 
who,  under  general  instructions  from  the  home  office,  has  authority, 
within  a  certain  territory,  to  deliver  policies  and  receive  premiums, 
is  a  general  agent,  and  has  authority  to  waive  cash  payment.  Insur- 
ance Co.  v.  Booker,  9  Heisk.  (Tenn.)  606,  24  Am.  Rep.  344.  A  local 
insurance  agent  is  presumed  to  have  power  co-extensive  with  the  busi- 
ness intrusted  to  his  care,  and  his  powers  will  not  be  narrowed  by 
limitations  not  communicated  to  the  person  with  whom  he  deals. 
Baubie  v.  Insurance  Co.,  2  Dill.  156,  Fed.  Cas.  No.  1,111.    Where,  by 


PAYMENT    OF   FIRST    TREMIDM  125 

the  terms  of  a  policy,  a  particular  local  agent  is  to  countersign  it  to 
make  it  valid,  so  that  the  insured  must  deal  with  him  and  no  one  else, 
he  represents  the  power  of  the  company,  so  that  any  policy  which  he 
countersigns  binds  the  company  to  any  person  insured  through  his 
agency,  who  has  no  notice  of  limitation  of  his  power,  though  he  may 
have  exceeded  his  authority,  and  violated  his  duty  to  his  principal. 
Insurance  Co.  v.  Earle,  33  Mich.  151,  153;  \'iele  v.  Insurance  Co., 
26  Iowa,  58,  96  Am.  Dec.  83 ;  ]\Iurphy  v.  Insurance  Co.,  3  Baxt. 
(Tenn.)  440,  27  Am.  Rep.  761;  Whited  v.  Insurance  Co.,  76  X.  Y. 
415,  Z2  Am.  Rep.  330. 

A  local  agent  having  ostensible  general  authority  to  solicit  appli- 
cations and  make  contracts  for  insurance,  and  to  receive  first  pre- 
miums, binds  his  principal  by  any  acts  or  contracts  within  the  gen- 
eral scope  of  his  apparent  authority,  notwithstanding  an  actual  excess 
of  authority.  Insurance  Co.  v.  Wilkinson,  13  Wall.  234,  20  L.  Ed. 
617;  Insurance  Co.  v.  Neyland,  9  Bush  (Ky.)  436;  Rivara  v.  In- 
surance Co.,  62  2vliss.  721;  Insurance  Co.  v.  McLanathan,  11  Kan. 
533  ;  Insurance  Co.  v.  Kasey,  66  Va.  271,  18  Am.  Rep.  681 ;  Wheaton 
V.  Insurance  Co.,  76  Cal.  415,  18  Pac.  758,  9  Am.  St.  Rep.  216;  In- 
surance Co.  V.  Barnes,  41  Kan.  161,  21  Pac.  165 ;  Insurance  Co.  v. 
Hosrue,  41  Kan.  524,  21  Pac.  641.  Bv  the  authorities  above  cited  it 
appears  that  the  plaintiffs  were  entitled  to  the  whole  term  of  the  credit 
for  which  they  contracted,  through  the  defendant's  local  agent,  and 
could  not  thereafter  be  put  in  default  for  a  failure  to  pay  or  tender 
the  premium  before  the  expiration  of  the  period  of  credit  actually 
given.  That  credit  from  May  2  until  October  1,  1887,  was  actually 
given,  must  be  assumed  as  a  fact  for  the  purposes  of  the  motion  for 
a  nonsuit.     *     *     * 

It  also  appears  by  the  terms  of  the  written  appointment  of  the 
local  agent  that  he  was  made  responsible  to  the  company  for  the  col- 
lection of  all  premiums  on  policies  issued  by  him,  and  that  it  was  the 
custom  of  the  company  to  allow  its  agents  to  give  a  credit  of  60  days 
on  premiums.  From  these  facts  it  may  fairly  be  inferred  that  the 
company  was  content  to  substitute  the  personal  liability  of  the  agent 
for  the  condition  of  prepayment  of  the  premium.  Elkins  v.  Insur- 
ance Co.,  113  Pa.  386-394,  6  Atl.  224;  Insurance  Co.  v.  Hoover,  113 
Pa.  591,  8  Atl.  163,  57  Am.  Rep.  511;  Insurance  Co.  v.  Elkins,  124 
Pa.  484,  17  Atl.  24,  10  Am.  St.  Rep.  608.     *     *     * 

The  next  important  question  relates  to  the  effect  of  the  provision 
in  the  policy  that  "the  use  of  general  terms,  or  anything  less  than  a 
distinct  specific  agreement,  clearly  expressed,  and  indorsed  on  this 
policy,  shall  not  be  construed  as  a  waiver  of  any  printed  or  written 
condition  or  restriction  herein."  So  far  as  such  provision  has  been 
held  to  constitute  a  limitation  upon  the  power  of  agents,  it  has  been 
applied  to  cases  of  waiver  of  conditions  made  after  the  signing  and 
delivery  of  the  policy  as  a  consummated  contract,  such  as  the  waiver 
of  conditions  relating  to  assignment  of  the  policy,  to  increase  of  risk, 


126  THE   MAKING    OF   THE    CONTRACT 

or  to  occupancy  of  the  insured  premises.  Shuggart  v.  Insurance  Co., 
55  Cal.  408;  Gladding  v.  Association,  66  Cal.  6,  4  Pac.  764;  Enos 
V.  Insurance  Co.,  67  Cal.  621,  8  Pac.  379;  Walsh  v.  Insurance  Co., 
73  N.  Y.  5.  In  the  last  case  cited,  it  is  expressly  held  that  the  con- 
clusion that  such  a  provision  limits  the  power  of  agents  after  the  pol- 
icy has  been  delivered,  and  the  restriction  upon  their  power  to  waive 
conditions  as  to  the  use  or  vacancy  of  the  premises,  known  to  the 
insured,  "does  not  interfere  with  that  class  of  cases  which  have  es- 
tablished that  conditions  for  pre-payment  of  premiums  and  the  like 
which  enter  into  the  validity  of  the  contract  of  insurance  at  its  in- 
ception, may  be  waived  by  agents,  and  are  waived,  if  so  intended." 

It  has  been  expressly  adjudged  by  the  supreme  court  of  Iowa,  in 
a  well-considered  case,  that  the  insured  is  not  bound  to  take  notice 
of  the  conditions  in  the  policy  that  the  premium  must  be  actually  paid, 
nor  of  the  provision  that  the  waiver  of  condition  must  be  indorsed  in 
writing  on  the  policy  when  the  policy  is  executed  and  delivered  to 
him  as  a  valid  and  completed  contract,  by  an  agent  having  authority  to 
countersign  it,  and  who  before  or  at  the  time  of  the  delivery  of.it  has 
given  the  insured  a  credit  upon  the  premium  by  parol ;  and  that,  if 
a  loss  occurs  in  such  case  before  the  credit  expires,  the  company  is 
bound,  notwithstanding  that  the  agreement  for  credit  was  not  in- 
dorsed upon  the  policy.  Young  v.  Insurance  Co.,  45  Iowa,  378,  24 
Am.  Rep.  784. 

And  it  has  been  repeatedly  held  that  where  any  fact,  which  would 
constitute  a  breach  of  a  condition  precedent  to  any  liability  of  the  com- 
pany on  the  policy,  is  fully  known  to  an  agent  of  the  company,  local  or 
general,  who  is  authorized  to  consummate  the  contract  of  insurance, 
the  knowledge  of  such  agent  is  the  knowledge  of  the  company,  and  his 
act  in  executing  and  delivering  the  policy,  as  a  valid  and  completed 
contract,  is  an  exercise  of  the  power  of  the  company,  and  constitutes  a 
waiver  by  the  company  of  such  condition  precedent,  and  also  a  waiver 
of  the  general  requirement  that  waivers  or  conditions  expressed  in 
+he  policy  shall  be  in  writing  indorsed  on  the  policy.  Van  Schoick  v. 
Insurance  Co.,  68  N.  Y.  434;  Whited  v.  Insurance  Co.,  76  N.  Y. 
418-421,  32  Am.  Rep.  330;  Insurance  Co.  v.  McCrea,  8  Lea  (Tenn.) 
513-520,  41  Am.  Rep.  647;  Insurance  Co.  v.  Jones,  62  111.  458;  In- 
surance Co.  V.  Earle,  33  Mich.  151-153;  Viele  v.  Insurance  Co.,  26 
Iowa,  58,  96  Am.  Dec.  83;  Murphy  v.  Insurance  Co.,  3  Baxt.  (Tenn.) 
440,  27  Am.  Rep.  761 ;  Geib  v.  Insurance  Co.,  1  Dill.  449,  Fed.  Cas. 
No.  5,298;  Devine  v.  Insurance  Co.,  32  Wis.  471;  Pelkington  v.  In- 
surance Co.,  55  Mo.  172;  Insurance  Co.  v.  Lyons,  38  Tex.  253;  In- 
surance Co.  V.  Hall,  12  Mich.  202;  Carroll  v.  Insurance  Co.,  38  Barb. 
(N.  Y.)  402;  Manufacturing  Co.  v.  Insurance  Co.,  2  Paine,  501,  Fed. 
Cas.  No.  17,206;    Insurance  Co.  v.  Schettler,  38  111.  166. 

It  is  also  well  settled  that  an  insurance  company  cannot  so  limit  its 
capacity  to  contract  by  general  stipulations  against  waiver  of  condi- 
tions, or  that  its  contracts  or  waivers  must  be  in  writing,  that  it  can- 


WHAT   PAPERS    FORM    THE    WRITTEN    CONTRACT  127 

not,  by  its  agents,  make  an  oral  contract  or  an  oral  waiver  not  for- 
bidden by  the  statute  of  frauds.  Trustees  v.  Insurance  Co.,  19  N. 
Y.  305 ;  Insurance  Co.  v.  Norton,  96  U.  S.  234,  24  L.  Ed.  689 :  Car- 
rugi  V.  Insurance  Co.,  40  Ga.  141,  2  Am.  Rep.  567;  Lamberton  v. 
Insurance  Co.,  39  Minn.  129,  39  N.  W.  76,  1  L.  R.  A.  222;  Insur- 
ance Co.  V.  Earle.  33  Mich.  153;  Renier  v.  Insurance  Co..  74  Wis. 
89,  42  N.  W.  208;  Steen  v.  Insurance  Co.,  89  N.  Y.  326,  42  Am. 
Rep.  297. 

Whether  or  not  any  particular  agent  has  the  general  power  of  the 
company  to  make  an  oral  contract,  or  an  oral  waiver  of  a  condition, 
notwithstanding  the  provision  in  the  policy  requiring  a  writing,  is  a 
question  of  fact.  Insurance  Co.  v.  Norton,  96  U.  S.  234,  24  L.  Ed. 
689;  Steen  V.  Insurance  Co.,  89  N.Y.  326,  42  Am.  Rep.  297.  *  *  * 
Reversed.^  ^ 


V.  What  Papers  Form  the  Written  Contract  ^^ 


REYNOLDS  v.  ATLAS  ACCIDENT  INS.  CO.  OF  BOSTON. 

(Supreme  Court  of  Minnesota,  1897.     69  Minn.  93,  71  N.  W.  831.) 

Action  by  Eva  T.  Reynolds  against  the  Atlas  Accident  Insurance 
Company  of  Boston.  From  an  order  dismissing  the  action,  plaintiff 
appeals. 

Mitchell,  J.^^  In  April,  1893,  the  defendant  issued  to  George 
L.  Reynolds  an  accident  insurance  policy,  whereby,  "in  consideration 
of  the  warranties  and  agreements  contained  in  the  application  in- 
dorsed hereon,"  it  accepted  him  as  a  member  of  the  company,  "and 
subject  both  to  the  conditions,  agreenients,  and  limitations  herein 
contained,  and  to  all  conditions  indorsed  hereon,"  insured  him  against 
the  effects  of  bodily  injuries  caused  solely  by  external  violent  and 
accidental  means  in  various  sums,  according  to  the  nature  and  extent 
of  the  injury,  in  case  it  did  not  result  in  death;  but  "if  such  injury 
alone  shall  result  in  the  death  of  the  insured,  within  ninety  days  there- 
after the  company  will  pay  $5,000  to  Eva  T.  Reynolds,  his  wife,  if 
surviving."  Among  the  conditions  printed  on  the  back  of  the  policy 
were  the  following:  "The  application  for  membership  is  made  a  part 
of  this  contract,  and  printed  thereon.  Fraud  or  concealment  in  ob- 
is As  to  power  of  agent  to  waive  payment  of  first  premium,  see  Tom- 
secek  v.  Travelers'   Ins.   Co.,  ante.  p.    116. 

Power  of  agents  to  waive  conditions  of  policy,  generally,  see  post,  pp.  243, 
253. 

16  For  discussion  of  principles,  see  Vance  on  Insurance,  §  6S.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  GG2-G90. 

17  Part  of  the  opinion  is  omitted. 


128  THE  MAKING  OF  THE  CONTRACT 

taining  membership  *  *  *  shall  make  chis  contract  and  insurance 
void.  The  provisions  and  conditions  aforesaid  *  *  *  are  condi- 
tions precedent  to  the  insurance  hereof,  and  to  its  validity  and  en- 
forcement." 

Reynolds'  application  for  membership,  signed  by  him,  stated  that: 
"Membership  to  be  based  upon  the  following  statement  of  facts,  which 
are  warranted  by  me  to  be  true  and  complete."  This  application  was 
all  printed,  except  Reynolds'  answers  to  the  questions  propounded  to 
him,  and  his  signature.  It  contained  17  questions  to  be  answered  by 
the  applicant,  5  of  which  required  categorical  answers  of  "Yes"  or 
"No."  The  sixteenth  question  was,  "Have  you  ever  had  paralysis, 
or  fits  of  any  kind,  or  are  you  subject  to  or  affected  by  any  bodily 
or  mental  infirmity,  or  have  you  suffered  the  loss  of  a  limb?" 

It  appeared  that  the  answers  were  all  in  the  handwriting  of  an  agent 
of  the  defendant  who  took  Reynolds'  application,  but  who  had  no 
personal  recollection  of  the  transaction  at  the  time  of  the  trial.  The 
answers  to  the  questions  requiring  categorical  answers,  including  the 
sixteenth,  were  indistinctly  written,  all  of  them  appearing  to  consist 
of  the  letter  "n"  followed  by  a  part  of  the  letter  "o."  None  of  them 
had  any  resemblance  to  the  word  "Yes,"  and,  as  suggested  by  the 
trial  judge,  we  think  "an  inspection  of  the  application  would  satisfy 
any  disinterested  person  that  there  was  no  ambiguity  as  to  the  answer 
to  the  inquiry  about  fits," — that  it  was  clearly  intended  for  the  word 
"No,"  although  indistinctly  written. 

This  application  was  forwarded  to  the  company,  which  executed 
the  policy,  and  attached  to  the  back  thereof,  with  mucilage  or  some 
similar  substance,  a  copy  of  the  application,  and  forwarded  the  same 
to  the  insured,  the  original  application  being  retained  by  the  company. 
The  instrument  attached  to  the  back  of  the  policy  was  an  exact  copy 
of  the  original  application,  except  that  the  categorical  answers  to  the 
five  questions  referred  to,  including  the  sixteenth,  were  very  clearly 
and  distinctly  written  "No."  The  policy,  with  this  copy  of  the  appli- 
cation attached,  was  retained  by  the  insured  in  his  possession,  with- 
out objection,  so  far  as  appears,  until  his  death,  over  three  years  after- 
wards. About  the  last  of  April,  1896,  the  insured,  while  driving  a 
team  attached  to  a  load  of  lumber  along  a  country  road,  from  some 
cause  that  can  only  be  conjectured,  fell  off  the  wagon,  and  was  run 
over  by  one  of  its  wheels,  and  thereby  received  injuries  from  which 
he  died  almost  immediately.  His  widow,  as  the  beneficiary,  brought 
this  action  on  the  policy. 

One  of  the  defenses  interposed  by  the  defendant  was  misrepresenta- 
tion and  concealment  of  the  deceased  in  obtaining  membership,  and 
especially  misrepresentation  and  falsehood  in  his  answer  to  the  six- 
teenth question  in  the  application  already  referred  to.  The  evidence 
is  uncontradicted  that  the  deceased  was,  at  the  time  he  made  the  appli- 
cation for  insurance,  and  for  some  years  before  had  been,  and  up  to 
the  time  of  his  death  continued  to  be,  subject  to  quite  severe  epileptic 


WHAT   PAPERS    FORM   THE    WRITTEN    CONTRACT  129 

fits  at  longer  or  shorter  intervals.  Upon  the  foregoing  state  of  the 
evidence,  when  plaintiff  rested,  the  court,  on  motion  of  the  defendant, 
dismissed  the  action. 

The  first  and  main  contention  of  the  plaintiff's  counsel  is  that  the 
application  for  membership  was  not  "indorsed"  upon  the  policy  as 
therein  provided,  and  therefore  it  is  no  part  of  it,  and  the  defendant 
cannot  claim  by  way  of  defense  the  benefit  of  anything  contained  in 
the  application.  His  claim  is  that  "attached"  is  not  "indorsed" ;  that 
the  latter  word  means  written  or  printed  upon  the  back  of  the  same 
paper  upon  which  are  written  or  printed  the  terms  of  what  is  popu- 
larly called  the  "policy." 

We  cannot  agree  with  counsel.  The  word  "indorsed,"  as  used  in 
this  policy,  is  not  to  be  construed  in  the  technical  sense  in  which  it 
is  used  in  the  law  merchant  as  applied  to  bills  of  exchange  or  promis- 
sory notes,  where  it  means  written  on  the  bill  or  note  itself,  but  in 
the  more  primitive  and  popular  sense  of  something  written  or  printed 
upon  or  attached  to  a  document,  upon  the  opposite  side  of  which 
something  else  had  been  previously  written  or  printed.  Where  an 
application  is  made  a  part  of  the  policy,  provisions  in  the  policy  for 
incorporating  the  application  into  the  policy  or  attaching  it  thereto, 
or  statutes  requiring  this  to  be  done,  have  for  their  object  the  protec- 
tion of  both  the  insurer  and  the  insured  against  controversies  grow- 
ing out  of  alleged  fraud  or  mistake  in  the  statements  made  in  the  ap- 
plication. These  applications  are  usually  filled  up  by  an  agent  of  the 
insurer.  Although  correctly  filled  up  according  to  the  answers  given 
by  the  applicant,  yet,  when  a  loss  occurs,  the  insured  or  his  bene- 
ficiaries may  claim  that  correct  answers  were  given,  but  not  correctly 
inserted  in  the  application. 

On  the  other  hand,  although  correct  answers  may  have  been  given, 
they  may  have  been,  by  mistake  or  fraud,  incorrectly  stated  in  the  ap- 
plication, and  after  the  death  of  the  insured  his  beneficiaries  may  be 
confronted  with  it  as  a  ground  of  avoiding  the  policy,  when  it  is  no 
longer  possible  to  prove  its  inaccuracy.  But  if  a  copy  of  the  appli- 
cation is  in  some  way  attached  to  or  inserted  in  the  policy  delivered 
to  the  insured,  he  may  always,  by  reference  to  it,  fully  ascertain  its 
contents,  and  all  the  terms  and  conditions  of  his  contract,  and,  if  any 
of  his  alleged  answers  are  incorrectly  stated,  he  may  repudiate  them, 
and  demand  their  correction.  On  the  other  hand,  if  he  retains  the 
policy  without  objection,  he  will  be  deemed  to  have  approved  of  it, 
and  accepted  it  as  correctly  stating  his  answers,  so  that  neither  he 
nor  his  beneficiaries  can  say  that  the  answers  were  inserted  incorrectly, 
and  without  his  knowledge. 

Hence  the  important  and  essential  thing  is  not  how,  or  in  what 
particular  manner,  the  application  is  attached  to  or  contained  in  the 
policy,  but  that  it  shall  be  contained  in  or  attached  to  it  so  as  to  fur- 
nish to  the  insured  full  knowledge  of  its  contents  by  reference  to  the 
CooLEY  Ins. — 9 


130  THE    MAKING   OF   THE    CONTRACT 

policy  and  the  documents  physically  connected  with  it.  Therefore  in 
statutes,  as  in  Pennsylvania,  Iowa,  and  Wisconsin,  containing  provi- 
sions having  this  same  general  object,  we  find  the  expressions,  "con- 
tain copies,"  "attach  to  such  policy  or  indorse  thereon,"  and  the  like, 
used  indiscriminately,  indicating  that  the  particular  manner  of  attach- 
ing the  application  to  the  policy  was  deemed  unimportant  so  long  as 
it  was  in  fact  attached  to,  indorsed  upon,  or  contained  in  it.  We  are 
therefore  of  opinion  that  attaching  the  copy  of  the  application  to  the 
back  of  the  policy  was  a  substantial  compliance  with  the  provisions  of 
the  policy,  so  as  to  make  the  former  a  part  of  the  latter.  *  *  ■" 
Affirmed. 


* 


VI.  Same — Mutual  Benefit  Insurance  ^' 


SUPREME  LODGE  OF  SONS  &  DAUGHTERS  OF  PROTEC- 
TION v.  UNDERWOOD. 

(Supreme  Court  of  Nebraska,  1902.     3  Neb.  [Unof.]  798,  92  N.  W.  1051.) 

Commissioners'  opinion. 

Albert,  C.^^  This  action  was  brought  by  Emma  E.  Underwood 
to  recover  on  a  beneficiary  certificate  issued  by  the  Supreme  Lodge 
of  the  Sons  and  Daughters  of  Protection,  a  fraternal  insurance  com- 
pany, organized  for  the  benefit  of  its  members  and  beneficiaries, 
insuring  the  life  of  her  husband  for  her  benefit.  The  petition  is 
in  the  usual  form,  and  sufficiently  states  a  cause  of  action.  *  *  * 
The  defense  relied  on  is  that  the  assured  committed  suicide.  The 
answer,  among  other  things,  contains  the  following  allegations : 
"That  at  the  time  of  issuing  said  certificate  *  *  *  it  [the  de- 
fendant] had  in  its  possession  the  following  agreement,  made,  exe- 
cuted, and  delivered  to  it  by  the  said  David  M.  Underwood,  which 
was  in  words  and  figures  as  follows,  to  wit."  Then  follows  a  copy 
of  what  purports  to  be  an  application  of  the  assured  for  member- 
ship in  the  defendant  order,  containing,  among  other  stipulations, 
the  following:  "I  further  agree  that,  should  I  commit  suicide  within 
two  years  from  the  date  of  my  admission  into  the  order,  whether 
sane  or  insane  at  the  time,  that  this  contract  shall  be  null  and  void, 
and  of  no  binding  force  upon  the  said  supreme  lodge."  Then  fol- 
lows the  allegation  that  the  defendant  would  not  have  issued  said 
certificate   "but   for   the   agreement,    representations,    and    statements 

18  For  discussion  of  principles,  see  Vance  on  Insurance,   §  69.   See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  p.  690  et  seq. 

19  Part  of  tbe  opinion  is  omitted. 


WHAT   PAPERS   FORM   THE   WRITTEN    CONTRACT  131 

made  by  the  said  Daniel  M.  Underwood  in  his  application  for  mem- 
bership." The  jury  returned  a  verdict  for  the  plaintiff,  and  judg- 
ment was  given  accordingly.     The  defendant  brings  error. 

Every  defense,  save  that  of  suicide,  is  eliminated  from  this  case, 
and  the  reasons  urged  for  a  reversal  of  the  judgment  of  the  dis- 
trict court  are  based  entirely  in  the  evidence,  rulings,  and  instruc- 
tions of  the  court  in  regard  to  that  defense.  We  do  not  deem  it 
necessary  to  examine  into  those  reasons,  because  we  are  satisfied 
that  the  question  of  suicide  is  immaterial,  in  view  of  the  record. 
The  certificate  names  the  plaintiff  as  beneficiary.  It  contains  no 
provision  exempting  the  defendant  from  liability  in  case  the  assured 
dies  by  his  own  hand.  Neither  the  constitution  nor  the  by-laws 
of  the  defendant  contains  any  such  provision.  It  is  true,  what  pur- 
ports to  be  an  application  of  the  assured  contains  such  a  provision, 
but  it  is  not  referred  to  in  the  certificate,  nor  does  it  provide  that 
it  shall  be  a  part  of  the  contract ;  neither  does  the  constitution  or 
by-laws  make  it  a  part  of  the  contract  of  insurance.  There  is  no 
doubt  it  might  be  a  part  contract,  in  the  absence  of  all  these  things ; 
but  in  that  event  its  relation  to  the  contract  should  appear  by  apt 
averments.  The  answer  contains  no  such  averments.  It  does  not 
even  give  the  date  of  the  alleged  application,  nor  is  there  any  al- 
legation that  the  certificate  is  based  on  such  application.  These 
omissions  are  not  cured  by  the  appellation  that  the  certificate  would 
not  have  issued  "but  for  the  agreements,  statements,  and  representa- 
tions made  by  the  said  David  M.  Underwood  in  his  application  for 
membership,"  because  such  omissions  destroy  the  force  of  this  very 
allegation.  In  our  opinion,  therefore,  the  certificate,  with  the  con- 
stitution and  by-laW'S,  constituted  the  contract  of  insurance ;  and  as 
the  contract,  as  thus  constituted,  contains  no  provision  against  suicide, 
a  defense  based  on  such  ground  is  not  available  in  this  case  on  the 
facts  stated.  Mills  v.  Rebstock.  29  Minn.  380,  13  N.  W.  162;  Kerr 
V.  Association,  39  Minn.  174,  39  N.  W.  312,  12  Am.  St.  Rep.  631; 
Patterson  v.  Insurance  Co.,  100  Wis.  118,  75  N.  W.  980,  42  L.  R. 
A.  253,  69  Am.  St.  Rep.  899;  Fitch  v.  Insurance  Co.,  59  N.  Y. 
557,  17  Am.  Rep.  372;  Goodwin  v.  Association,  97  Iowa,  226,  66 
N.  W.  157,  32  L.  R.  A.  476,  59  Am.  St.  Rep.  411. 

In  this  view  of  the  case  the  record  shows  no  defense  to  th^  ac- 
tion, and  the  errors  relied  upon,  should  they  be  held  errors,  are 
without  prejudice  to  the  defendant. 

It  is  recommended  that  the  judgment  of  the  district  court  be  af- 
firmed. 

Per  Curiam.  The  conclusions  reached  by  the  commissioners  are 
approved,  and,  it  appearing  that  the  adoption  of  the  recommendations 
made  will  result  in  a  right  decision  of  the  cause,  it  is  ordered  that 
the  judgment  of  the  district  court  be  affirmed. 


132  THE    MAKING    OF   THE    CONTRACT 


REYNOLDS  v.  SUPREME  COUNCIL  OF  ROYAL  ARCANUM. 

(Supreme  Judicial  Court  of  Massaeliusetts,  1906.     192  Mass.  loO,  78  N.  E.  129, 
7  L.  R.  A.  [N.  S.]  1154,  7  Ann.  Cas.  776.) 

Case  reserved  for  full  court. 

Knowlton,  C.  J.-**  This  is  a  bill  in  equity  to  set  aside  certain 
changes  in  the  defendant's  by-laws  which  affect  the  rights  of  certifi- 
cate holders.  The  defendant  is  a  fraternal  beneficiary  association,  or- 
ganized under  the  laws  of  Massachusetts  in  1877,  and  now  subject  to 
the  provisions  of  Rev.  Laws,  c.  119,  and  the  acts  in  amendment  there- 
of. The  plaintiffs  are  certificate  holders,  who  bring  this  bill  for  them- 
selves and  in  behalf  of  others. 

From  the  time  of  its  organization  the  defendant  issued  certificates 
to  members,  agreeing  to  pay  to  a  designated  beneficiary  a  sum  not  ex- 
ceeding a  certain  number  of  dollars  on  the  death  of  the  member,  upon 
compliance  by  him  with  certain  conditions  therein  stated.  The  by- 
laws provided  that  the  death  benefit  should  be  for  a  definite  amount, 
and  payments  of  these  definite  amounts  have  always  been  made.  The 
words  "not  exceeding"  are  inserted  in  the  certificate  to  meet  the  pos- 
sibility of  a  single  full  assessment  not  being  equal  to  the  amount 
stated.  This  limitation  of  the  payment  to  the  amount  of  an  assess- 
ment, except  when  there  is  an  emergency  fund,  was  expressly  called 
for  bv  St.  1899,  p.  471,  c.  442,  §  11,  which  is  now  found  in  Rev.  Laws, 
c.  119,  §  6. 

Until  1898  the  assessments  paid  by  members,  from  which  the  death 
benefits  were  derived,  were  certain  sums  dependent  upon  the  age  of 
the  member  at  the  time  of  receiving  his  certificate,  which  sums  re- 
mained the  same  as  the  years  went  by.  These  sums  were  paid  to 
meet  assessments  as  members  died,  and  the  amount  for  the  first  year 
would  equal  the  cost  to  the  corporation  of  the  insurance  of  these 
members.  But  as  the  members  grew  older  the  risk  of  their  death  in- 
creased, and  as  their  payments  remained  constant,  and  as  there  was 
at  no  time  a  payment  of  any  surplus  beyond  the  amount  required  to 
meet  losses,  the  payments  by  members  of  long  standing  were  not 
nearly  enough  to  equal  the  cost  of  their  insurance  to  the  corporation. 
So  the  only  way  in  which  the  amounts  required  to  meet  losses  could 
be  obtained  was  from  the  payments  made  by  new  members. 

In  1898  the  by-laws  were  amended  so  as  largely  to  increase  the  pay- 
ments to  be  made  by  all  members,  and  to  require  the  payments  month- 
ly. These  amendments  went  into  effect  on  August  1,  1898,  and  it  ap- 
pears by  the  agreed  facts  that  no  objection  thereto  has  ever  been 
made  by  any  member  of  the  order.  These  payments,  while  much 
larger  than  those  required  by  the  original  by-laws,  were  upon  the  same 
relative  basis ;   that  is,  the  increase  upon  all  was  in  the  same  propor- 

20  Part  of  the  opinion  is  omitted. 


WHAT   PAPERS   FORM    THE    WRITTEN    CONTRACT  133 

tion,  and  they  were  all  determined  by  the  age  of  the  member  when 
he  received  his  certificate,  and  were  not  to  be  afterwards  changed  as 
a  member  grew  older. 

When  these  amendments  were  made  it  was  thought  that  the  in- 
crease would  provide  for  the  future  payments  called  for  by  the  cer- 
tificates, and  that  an  adequate  emergency  fund  would  be  created  from 
this  income.  Under  these  amendments  there  was  a  surplus  in  1898 
from  the  excess  of  receipts  above  payments  amounting  to  more  than 
$455,000,  and  afterwards  there  was  annually  a  steadily  diminishing 
surplus  from  the  same  cause  to  and  including  the  year  1903.  In  the 
year  1904  the  payments  exceeded  the  receipts,  and  there  was  a  deficit 
of  $270,540.50. 

Prior  to  the  session  of  the  Supreme  Council  in  May,  1905,  the  ex- 
ecutive committee  caused  mortality  tables  of  the  order  to  be  prepared, 
and  made  extended  investigations  and  studies  with  the  aid  of  compe- 
tent actuaries,  to  devise  some  method,  through  a  change  of  by-laws, 
which  should  enable  the  corporation  to  meet  its  obligations  to  mem- 
bers. The  actuaries  prepared  for  them  new  tables,  each  the  mathemat- 
ical equivalent  of  the  others,  the  first  being  the  regular  rates,  and 
three  others  optional  alternatives.  These  were  founded  upon  the  pay- 
ment by  the  order  of  the  maximum  value  of  each  certificate,  and  the 
payment  by  the  member  of  a  rate  adequate,  without  further  modifica- 
tion or  additional  assessment,  to  pay  the  certificate  at  the  maturity 
thereof.  It  is  agreed  that  "competent  actuaries  would  testify,  and 
the  case  may  be  taken  as  though  they  had  testified,  that  the  old  plan 
of  assessments  was  faulty,  according  to  the  assumptions  made  by  the 
actuaries,  and  that  the  order  could  not  meet  the  maximum  face  of 
its  certificates  under  it;  that  upon  their  assumptions  a  change  was 
expedient  or  necessary;  that  the  plans  proposed  and  adopted  were 
mathematically  correct;  that  if  the  members  paid  the  amounts  fixed 
in  these  tables  the  order  could  continue  to  pay  the  maximum  face 
value  of  its  certificates  at  their  maturity;  that  such  amounts  are  no 
higher  than  necessary  for  this  purpose,  and  that  they  fairly  and  eq- 
uitably apportion  among  the  members  their  contributions  to  the  wid- 
ows' and  orphans'  benefit  fund,  taking  into  consideration  their  age 
and  risk."  "The  plaintiffs  do  not  controvert  this  evidence  in  this  case, 
but  reserve  the  right  to  discuss  its  materiality,  the  basis  and  theories 
upon  which  it  rests,  and  its  application  to  this  case."  On  January  1, 
1905,  the  members  of  the  corporation  were  305,083  in  number,  and 
they  held  benefit  certificates  amounting  to  $680,848,000. 

Under  these  conditions  the  changes  recommended  by  the  actuaries 
were  adopted  by  an  amendment  of  the  by-laws  by  an  almost  unani- 
mous vote  of  the  members  of  the  Supreme  Council,  and  the  question 
is  whether  the  changes  are  legal  and  binding  upon  the  members. 

From  the  facts  agreed  it  is  plain  that  a  great  corporation,  manag- 
ing and  controlling  important  financial  interests  for  hundreds  of  thou- 
sands of  families,  was  conducting  its  business  upon  unsound  princi- 


134  THE    MAKING   OF   THE    CONTRACT 

pies,  which,  if  followed  without  change,  would  ultimately  lead  to  finan- 
cial ruin.  The  first  question  is,  was  the  change  adopted  in  excess 
of  the  defendant's  corporate  powers,  or  in  violation  of  the  statute 
governing  such  corporations?  The  statutes  authorize  the  adoption  of 
by-laws  declaring  "the  manner  in  which  *  *  *  the  purposes  of 
its  incorporation  may  be  accomplished."  Rev.  Laws,  c.  125,  §  6;  Id., 
c.  119,  §  2.  These  by-laws  may  prescribe  the  "assessments  and  ben- 
efits in  case  of  disability  or  death,  and  the  conditions  upon  which  the 
same  shall  be  paid,  *  *  *  the  method  of  the  amendment  of  the 
by-laws,  and  such  other  provisions  as  the  corporation  may  determine." 
Rev.  Laws,  c.  119,  §  2.  Such  a  corporation  "may  make  provisions 
for  the  payment  of  benefits  in  case  of  death  or  disability  or  both.  The 
funds  from  which  the  payment  of  such  benefits  shall  be  made  shall  be 
derived  only  from  assessments  collected  from  the  members.  *  *  * 
Such  provisions,  funds,  assessments,  and  payments  shall  be  as  re- 
quired in  the  by-laws  of  the  corporation."  Rev.  Laws,  c.  119,  §  6. 
Plainly  the  statute  contemplates  that  such  corporations  shall  have 
power  to  establish  by  their  by-laws  a  system  of  giving  death  benefits 
which  shall  be  sound  and  equitable,  and  founded  on  principles  which 
can  reasonably  be  expected  to  furnish  proper  security  for  the  per- 
formance of  their  contracts  with  members.  The  power  to  make  prop- 
er changes  in  these  particulars  by  amendment  of  the  by-laws  from 
time  to  time  is  expressly  given. 

There  is  no  ground  for  the  contention  that  it  is  a  violation  of  the 
statute  or  of  the  defendant's  chartered  rights  to  provide  for  such  as- 
sessments as  will  be  likely  to  insure  the  payment  of  the  sums  named 
in  the  certificates.  The  statute  expressly  authorizes,  not  only  a  death 
fund  amounting  to  three  full  assessments  upon  the  members,  but  also 
the  accumulation  of  an  emergency  fund  amounting  to  5  per  cent. 
upon  the  face  value  of  all  outstanding  benefit  certificates.  The  emer- 
gency fund  is  to  be  invested  in  safe  securities,  and  all  of  these  are 
to  be  deposited  with  the  treasurer  of  the  commonwealth.  Rev.  Laws, 
c.  119,  §  7.  As  the  promise  to  pay  the  beneficiary  is  binding  upon 
the  corporation,  it  ought  to  make  adequate  provision  to  obtain  the 
means  of  payment,  Newhall  v.  American  Legion  of  Honor,  181  Mass. 
Ill,  63  N.  E.  1. 

The  objection  that  the  amendments  are  illegal  by  reason  of  the  di- 
vision of  the  members  into  classes  cannot  prevail.  There  is  no  objec- 
tion to  a  classification  of  members  according  to  age,  and  it  would  be 
unjust  to  disregard  age  in  determining  the  rates  that  different  per- 
sons shall  pay  for  death  benefits  in  an  association  of  this  kind. 

The  distinctive  features  of  such  organizations  remain  since  the 
adoption  of  the  amendments  as  well  as  before.  The  fraternal  plan, 
with  mutuality  and  without  profit,  distinguishes  the  work  of  such  an 
association  from  a  commercial  enterprise.  It  is  a  charitable  and  be- 
nevolent organization,  with  a  limitation  of  membership  to  a  special 
class,  and  a  limitation  upon  the  choice  of  beneficiaries.    It  is  not  al- 


WHAT   PAPERS    FORM   THE    WRITTEN    CONTRACT'  135 

lowed  to  employ  paid  agents  in  soliciting-  or  procuring  business,  ex- 
cept within  very  narrow  limits  prescribed  by  the  statutes.  Rev.  Laws, 
c.  119,  §  16.  Looking  to  the  nature  and  purposes  of  fraternal  bene- 
ficiary corporations,  we  see  nothing  in  the  amendments  at  variance 
with  the  laws.  It  cannot  have  been  intended  that  such  corporations 
should  be  limited  to  a  method  of  assessment  that  would  be  sure  to 
bring  about  their  early  dissolution. 

Another  question  is  whether  the  amendments  are  in  violation  of  the 
contract  rights  of  members.  It  is  stated  in  the  record  that  "the  agree- 
ments between  the  plaintiff  and  the  defendant  concerning  assessments 
and  benefits  are  not  contained  in  any  one  specific  instrument,  but  are 
found  in  the  application  for  membership,  the  benefit  certificate,  the 
laws  of  Massachusetts  constituting  the  charter  and  the  constitution 
and  laws  of  the  order."  If  there  were  no  express  stipulation  in  re- 
gard to  the  by-laws  in  the  application  for  membership  or  in  the  cer- 
tificates, all  members  of  such  a  corporation  would  be  bound  by  by- 
laws regularly  made  or  amended.  Durfee  v.  Old  Colony,  etc.,  R.  R. 
Co.,  5  Allen,  230,  242;  Pain  v.  Societe  St.  Jean  Baptiste,  172  Mass. 
319,  52  N.  E.  502,  70  Am.  St.  Rep.  287;  Oliver  v.  Hopkins,  144 
Mass.  175,  10  N.  E.  776;  Spilman  v.  Supreme  Council  Home  Circle, 
157  Mass.  128,  31  N.  E.  776;  Wright  v.  Minn.  Mutual  Life  Ins.  Co.. 
193  U.  S.  657,  24  Sup.  Ct.  549,  48  L.  Ed.  832;  Supreme  Lodge 
Knights  of  Pythias  v.  Knight,  117  Ind.  489,  20  N.  E.  479,  3  L.  R.  A. 
409. 

Every  member  of  this  corporation,  at  the  time  of  joining  it,  enters 
into  an  express  agreement  to  "conform  to  and  abide  by  the  constitu- 
tion, laws,  rules  and  usages  of  the  said  council  and  order,  now  in 
force  or  which  may  hereafter  be  adopted  by  the  same."  The  certifi- 
cates promise  payment  only  on  condition  that  the  member  complies 
"with  the  laws,  rules  and  regulations  now  governing  the  said  council 
and  fund,  or  that  may  hereafter  be  enacted  by  the  Supreme  Council 
to  govern  the  said  council  and  fimd,"  etc.  Here  in  the  contract  is 
full  authority  to  amend  the  laws,  rules  and  regulations.     *     *     * 

This  part  of  the  present  case  is  covered  in  principle  by  the  decisions 
of  this  court  in  Messer  v.  Grand  Lodge,  180  Mass.  321,  62  N.  E.  252, 
'and  Pain  v.  Societe  St.  Jean  Baptiste,  172  Mass.  319,  52  N.  E.  502, 
70  Am.  St.  Rep.  287,  in  which  cases  changes  similar  to  those  made  by 
the  defendant  were  upheld  under  like  contracts.  The  same  general 
doctrine  has  been  stated  in  many  cases  in  other  courts.  Wright  v. 
Minn.  Mutual  Life  Ins.  Co.,  193  U.  S.  657,  24  Sup.  Ct.  549,  48  L.  Ed. 
832;  Fullenwider  v.  Supreme  Council  Royal  League,  Th  111.  App.  321 ; 
s.  c,  180  111.  621,  54  N.  E.  485,  72  Am.  St.  Rep.  239;  Bartram  v.  Su- 
preme Council  Royal  Arcanum,  6  Ont.  W.  R.  404 ;  Gaines  v.  Supreme 
Council  Royal  Arcanum  (C.  C.)  140  Fed.  978;  Fugure  v.  Society  St. 
Joseph,  46  Vt.  362 ;  Supreme  Lodge  Knights  of  Pythias  v.  Knight, 
117  Ind.  489,  20  N.  E.  479,  3  L.  R.  A.  409;  Haydel  v.  Mutual  Re- 
serve Fund  Life  Ass'n,  104  Fed.  718,  44  C.  C.  A.  169;   Gaut  v.  Same 


136  THE    MAKING   OF   THE   CONTRACT 

(C.  C.)  121  Fed.  403,  409;  Richmond  v.  Supreme  Lodge  Order  of 
Protection,  100  Mo.  App.  8,  71  S.  W.  736;  Barbot  v.  Mutual  Reserve 
Fund  Life  Ass'n,  100  Ga.  681,  28  S.  E.  498;  Mutual  Reserve  Fund 
Life  Ass'n  v.  Taylor,  99  Va.  208,  37  S.  E.  854. 

There  are  many  cases  in  which  it  is  held  that  the  amount  expressly 
promised  to  be  paid  in  a  certificate  like  those  issued  by  the  defendant 
cannot  be  cut  down  by  an  amendment  of  the  by-laws.  Newhall  v. 
American  Legion  of  Honor,  181  Mass.  Ill,  63  N.  E.  1;  Langan  v. 
Same,  174  N.  Y.  266,  66  N.  E.  932;  American  Legion  of  Honor  v. 
Getz,  112  Fed.  119,  50  C.  C.  A.  153.  But  in  many  of  these,  as  in 
the  case  from  this  court  last  cited,  a  distinction  is  made  between  the 
express  stipulation  of  the  corporation  to  pay  a  certain  sum  and  other 
provisions  relating  to  the  methods  of  the  corporation,  and  the  duties 
of  the  certificate  holders,  which  properly  may  be  a  subject  for  regula- 
tion by  by-laws,  even  though  they  affect  the  rights  of  the  parties  un- 
der their  contract.  The  assessments  to  be  paid  for  death  benefits  in 
this  case  are  provided  for  by  the  by-laws,  while  the  promise  in  writ- 
ing to  pay  a  certain  sum  to  a  particular  person  is,  as  to  that  person, 
a  matter  outside  of  those  corporate  rules  which  may  be  expected  to 
be  changed  by  an  amendment  of  the  by-laws.  This  promise  on  one 
side  is  set  over  against  the  promise  of  the  member  on  the  other.  The 
promise  of  the  member  is  to  do  what  may  be  called  for  by  the  by- 
laws then  existing  or  that  may  afterwards  be  adopted.  The  promise 
of  the  corporation  is  stated  expressly,  without  mention  of  the  by-laws. 
The  member  occupies  a  dual  position,  as  an  insurer  and  the  insured. 
As  one  of  the  association  agreeing  to  provide  for  the  payments  that 
may  become  due  to  members,  he  agrees  to  be  subject  to  the  by-laws. 
As  the  insured  person  to  whom  a  particular  sum  of  money  is  prom- 
ised, he  has  a  right  to  stand  on  the  terms  of  the  promise. 

That  the  duties  of  members  prescribed  by  the  by-laws  remain  sub- 
ject to  modification  when  a  power  of  amendment  is  reserved  has  often 
been  decided.  Loeffler  v.  Modern  Woodmen  of  America,  100  Wis. 
79,  75  N.  W.  1012;  Langnecker  v.  Grand  Lodge  A.  O.  U.  W.,  Ill 
Wis.  279,  87  N.  W.  293,  55  L.  R.  A.  185,  87  Am.  St.  Rep.  860;  Law- 
son  V.  Hewell,  118  Cal.  613,  50  Pac.  763,  49  L.  R.  A.  400;  Gilmore 
V.  Knights  of  Columbus,  77  Conn.  58,  58  Atl.  223,  107  Am.  St.  Rep. 
17,  1  Ann.  Cas.  715;  Ellerbe  v.  Faust,  119  Mo.  653,  25  S.  W.  390, 
25  L.  R.  A.  149. 

Most  of  the  cases  relied  on  by  the  plaintiffs,  when  rightly  analyzed, 
turn  on  the  distinction  between  an  attempted  amendment  of  the  by- 
laws directly  affecting  the  promise  to  the  certificate  holder  as  an  in- 
sured person,  and  an  amendment  affecting  his  duties  as  a  member  of 
the  corporation  bound  to  perform  his  part  in  providing  means  or  oth- 
erwise as  one  of  the  association  of  insurers.  Hale  v.  Equitable  Aid 
Union,  168  Pa.  377,  31  Atl.  1066;  Fargo  v.  Supreme  Tent,  96  App. 
Div.  491,  89  N.  Y.  Supp.  65;  Weber  V.  Supreme  Tent,  172  N.  Y. 
490,  65  N.  E.  258,  92  Am.  St.  Rep.  71Z;    Sautter  v.  Supreme  Con 


WHAT   PAPERS   FORM    THE    WRITTEN    CONTRACT  137 

clave,  72  N.  J.  Law,  325,  62  Atl.  529;  Tebo  v.  Royal  Arcanum,  89 
Minn.  3,  93  N.  W.  513;  Deuble  v.  Grand  Lodge,  66  App.  Div.  323, 
72  N.  Y.  Supp.  755;  Deuble  v.  Grand  Lodge,  172  N.  Y.  665,  65  N. 
E.  1116;  Beach  v.  Supreme  Tent,  177  N.  Y.  100,  69  N.  E.  281 ;  Start- 
ling V.  Royal  Templars,  108  Mich.  440,  66  N.  W.  340,  62  Am.  St. 
Rep.  709;  Peterson  v.  Gibson,  191  111.  365,  61  N.  E.  127,  54  L.  R. 
A.  836,  85  Am.  St.  Rep.  263;  Wist  v.  Grand  Lodge,  22  Or.  271,  29 
Pac.  610,  29  Am.  St.  Rep.  603 ;  Roberts  v.  Cohen,  60  App.  Div.  259, 
70  N.  Y.  Supp.  57 ;  Roberts  v.  Grand  Lodge,  173  N.  Y.  580,  65  N. 
E.  1122;  United  Workmen  v.  Stumpf,  24  Tex.  Civ.  App.  309,  58 
S.  W.  840;  Hadley  v.  Woodman,  1  Tenn.  Ch.  App.  413;  Spencer  v. 
Grand  Lodge,  53  App.  Div.  627,  65  N.  Y.  Supp.  1146.  Other  cases 
cited  by  the  plaintiffs  are  clearly  adverse  to  the  view  which  we  take. 
See  Ebert  v.  Mutual  Ass'n,  81  Minn.  116,  83  N.  W.  506,  834,  84  N. 
W.  457;  Strauss  v.  Mut.  Ass'n,  126  N.  C.  971,  36  S.  E.  352,  54  L. 
R.  A.  605,  83  Am.  St.  Rep.  699;  Benjamin  v.  Mutual,  146  Cal.  34, 
79  Pac.  517. 

On  principle  and  on  the  weight  of  authority  we  are  of  opinion  that 
there  is  nothing  in  this  contract  that  prevents  the  corporation  from 
amending  its  by-laws  in  a  reasonable  way,  to  accomplish  the  purposes 
for  which  it  was  organized,  even  though  the  change  increases  the  pay- 
ments to  be  made  by  certificate  holders.  Such  changes  necessarily  in- 
volve some  hardship  to  certain  individual  members,  but  the  corpora- 
tion, under  the  law,  should  do  that  which  will  bring  the  greatest  good 
to  the  greatest  number.  The  members  who  complain  of  its  action  are 
those  who  have  had  the  benefit  of  insurance  for  themselves  and  their 
families  for  many  years,  at  very  much  less  than  the  cost  of  their  in- 
surance to  the  corporation.  They  have  had  the  good  fortune  to  sur- 
vive, and  therefore  their  contracts  have  brought  them  no  money,  but 
all  the  time  they  have  had  the  stipulated  security  against  the  risk  of 
death.  If  now  they  are  called  upon  to  pay  for  future  insurance  no 
more  than  its  cost  to  the  corporation  they  ought  not  to  think  it  un- 
just.    Bill  dismissed. ^^ 

21  For  a  full  discussion  of  the  question  as  to  the  extent  to  which  mem- 
bers of  a  mutual  benefit  association  are  bound  by  subsequent  by-laws,  see 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  703-720. 


1.38  THE    CONSIDERATION — PREMIUMS  AND    ASSESSMENTS 


THE  CONSIDERATION— PREMIUMS  AND  ASSESSMENTS 
I.  In  General — Nature  of  the  Obligation  ^ 


FULLER  V.  METROPOLITAN  LIFE  INS.  CO. 

(Supreme  Court  of  Errors  of  Connecticut,   1898.     70  Conn.  647,  41  Atl.  4.) 

HamersIvEy,  j.2  *  *  *  Ljfg  insurance  is  protection  given  to 
one  person  against  the  damage  he  may  suffer  through  the  death  of 
another.  A  mere  wager  on  the  accident  of  death  is  void.  In  mutual 
life  insurance  the  protection  is  furnished  by  the  premiums  paid  by 
policy  holders.  The  duration  of  any  particular  life  is  the  merest 
chance,  but  the  average  duration  of  life  from  any  particular  age  ap- 
proaches mathematical  certainty.  Hence  it  is  possible  to  calculate  the 
sum  which,  paid  annually  by  a  large  number  of  insured,  will  satisfy 
the  insurance  on  those  who  may  die  each  year.  It  is  the  yearly  death 
claims  which  constitute  the  cost  of  insurance  that  the  premiums  muVt 
pay.  This  cost  for  a  young  man  is  small,  but  increases  each  year,  un- 
til it  becomes  very  large.  To  avoid  the  necessity  of  an  increasing 
premium,  a  uniform  premium  is  calculated,  which  furnishes  at  first 
much  more  than  enough  to  pay  the  cost  of  insurance,  and  later  on  is 
entirely  insufficient  for  that  purpose.  So  the  portion  of  the  premium 
not  used  for  the  early  yearly  cost  is  reserved  for  use  when  the  premi- 
um will  become  insufficient,  and  is  invested,  so  that  it  may  increase 
at  compound  interest.  It  follows  that  the  portion  of  the  premiums 
applied  to  pay  the  yearly  cost  gradually  increases,  and  that  the  por- 
tion which  has  been  reserved  to  make  up  the  insufficiency  of  the  pre- 
mium to  pay  future  cost  increases  with  the  aid  of  interest.  ■  The  part 
of  the  premium  intended  to  meet  the  cost  of  insurance,  both  current 
and  future,  is  called  the  "net  premium."  It  is  the  sum  paid  yearly 
by  each  to  furnish  the  stipulated  protection  for  all.  But  the  policy 
holders  must  pay  not  only  for  the  cost  of  insurance,  but  also  for  the 
expense  of  management;  so  to  the  net  premium  is  added  a  sum 
deemed  sufficient  to  pay  expenses  and  provide  for  contingencies,  which 
is  called  the  "loading."  In  this  way  the  policy  holders  pay  the  sum 
necessary  for  the  cost  of  insurance  and  expense  of  management. 

The  amount  of  the  net  premium  is  calculated  upon  the  basis  of  cer- 
tain tables  of  mortality,  and  upon  the  assumption  that  the  company 
will  receive  a  certain  rate  of   interest  upon  all  its  assets,  and  the 

1  For  discussion  of  principles,  see  Vance  on  Insurance.  §§  70,  71.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  pp.  98-105,  vol.  2,  pp.  910-1037. 

2  The  statement  of  facts  and  part  of  the  opinion  are  omitted. 


IN    GENERAL — NATURE    OF    THE    OBLIGATION  139 

amount  of  the  loading  is  calculated  upon  a  certain  assumed  rate  of 
expense.  Now,  it  may  happen  that  the  rate  of  mortality  experienced 
by  the  company  is  less,  and  the  rate  of  interest  actually  received  is 
greater,  than  that  assumed,  and  that  the  ratio  of  actual  expense  is 
less.  In  such  case  the  company  has  in  reserve  more  than  enough, 
with  the  anticipated  annual  premiums,  to  provide  for  future  cost  of 
insurance  and  management.  It  has  a  sum  which  is  not  needed  for  the 
purpose  for  which  it  was  paid.  This  sum  is  called  "profits."  It  is  in 
fact  a  surplus  resulting  from  overpayments  by  policy  holders.  This 
surplus  is  derived  from  money  paid  by  the  insured  and  received  by 
the  company  for  a  particular  purpose,  i.  e.  providing  for  cost  of  in- 
surance and  expense  of  management.  If  not  needed  for  that  purpose, 
it  should,  in  equity,  be  returned  to  the  policy  holders.  They  do  not. 
however,  own  it,  or  have  any  legal  control  over  its  distribution.  Part 
of  it,  indeed,  is  derived  from  contributions  of  policy  holders  who  are 
dead ;  but  the  equity  is  recognized,  and  it  is  the  duty  of  the  company, 
when  a  surplus  is  ascertained,  to  return  such  portion  as  it  does  not 
deem  proper  to  keep  as  a  guaranty  fund  to  the  existing  policy  holders 
in  equitable  (i.  e.  as  nearly  as  practicable)  proportion  to  their  overpay- 
ments or  contributions.  Such  return  of  overpayments,  whether  in 
cash  or  by  application  on  future  premiums,  or  by  increase  of  the 
amount  insured,  is  a  dividend.  This  is  the  meaning  of  "dividend," 
and  the  only  meaning  it  has  or  can  have  in  connection  with  mutual  in- 
surance. 

The  surplus  may  also  be  increased  through  the  failure  of  some  to 
continue  their  policies.  Where  a  policy  thus  lapses,  the  company  has 
in  hand  the  accumulations  of  a  portion  of  its  premiums,  invested  and 
held  in  reserve  to  supply  the  insufficiency  of  future  premiums  to  pay 
future  cost  of  insurance.  (The  amount  thus  held  in  reserve  depends 
on  the  judgment  of  the  company  in  calculating  its  premiums  and  the 
condition  of  its  business,  but  the  statute  treats  the  company  as  le- 
gally insolvent  unless  its  whole  reserve  is  at  least  equal  in  amount 
to  the  reserve  value  of  all  the  policies,  calculated  according  to  a  rule 
established  by  law.  Some  companies  accumulate  a  reserve  larger  than 
that  required  by  statute.  None  can  have  less  and  remain  solvent.) 
By  a  lapse  the  company  loses  the  future  premiums,  and  may  lose  in 
other  ways;  but  it  is  relieved  from  providing  for  future  cost  of  in- 
surance as  to  that  policy,  and  ordinarily,  when  the  reserve  fund  is 
good,  there  is  a  considerable  gain,  which  may  increase  the  surplus. 

Formerly,  whatever  gain  there  was  went  to  increase  the  surplus; 
but  latterly,  in  view  of  the  fact  that  these  overpayments  are  made  to 
provide  for  future  cost  of  insurance  by  a  policy  holder  who  up  to 
the  time  of  lapse  has  theoretically  paid  his  full  share  of  the  yearly 
cost  and  expense,  the  equity  of  the  lapsed  policy  holder  has  prevailed 
over  the  equity  of  those  who  remain,  and  he  is  allowed  an  equitable 
portion  of  those  overpayments,  and  this  is  called  the  "surrender  value" 
of  his  policy.    When  a  policy  lapses,  the  portions  of  prior  premiums 


140  THE    CONSIDERATION PREMIUMS   AND    ASSESSMENTS 

invested  and  held  in  reserve  can  no  longer  be  applied  to  the  purpose 
for  which  they  were  made,  and  to  the  extent  of  the  net  gain  by  the 
lapse  become  overpayments,  and  in  equity  should  be  returned  to  the 
holder  of  the  lapsed  policy,  or  to  the  surplus,  for  the  benefit  of  all.  A 
dividend,  therefore,  is  a  distribution  of  existing  overpayments,  result- 
ing mainly  from  savings  on  the  annual  cost  of  insurance  and  expense 
of  management,  and  in  part  from  savings  on  the  future  cost  of  in- 
surance, i.  e.  the  net  gain  from  lapsed  policies.     *     *     * 


NEW  YORK  LIFE  INS.  CO.  v.  STATHAM. 

(Supreme  Court  of  United  States,  1876.     93  U.  S.  24,  23  L.  Ed.  789.) 

Bill  in  equity  to  recover  amount  of  a  policy  of  life  insurance  on 
the  life  of  A.  D.  Statham,  a  resident  of  Mississippi  at  the  time  of 
his  death.  It  appeared  that  premiums  on  the  policy  were  paid  until 
the  breaking  out  of  the  Civil  War.  Because  of  that  the  premium 
due  December  8,  1861,  was  not  paid.  Insured  died  in  July,  1862. 
Heard  with  the  appeal  in  the  equity  case  were  writs  of  error  in  two 
actions  at  law,  involving  similar  facts.  Each  of  the  policies  involved 
provided  for  forfeiture  of  the  policy  for  non-payment  of  premiums 
when  due,  and  such  non-payment  was  pleaded  in  defense.  The  plain- 
tiffs contended  that  non-payment  was  excused  by  the  existence  of 
war.     The  decree  and  judgments  below  were  for  the  plaintiffs. 

Mr.  Justice  Bradley,  after  stating  the  case,  delivered  the  opinion 
of  the  court. ^ 

We  agree  with  the  court  below,  that  the  contract  is  not  an  assur- 
ance for  a  single  year,  with  a  privilege  of  renewal  from  year  to  year 
by  paying  the  annual  premium,  but  that  it  is  an  entire  contract  of  as- 
surance for  life,  subject  to  discontinuance  and  forfeiture  for  non- 
payment of  any  of  the  stipulated  premiums.  Such  is  the  form  of  the 
contract,  and  such  is  its  character.  It  has  been  contended  that  the 
payment  of  each  premium  is  the  consideration  for  insurance  during  the 
next  following  year, — as  in  fire  policies.  But  the  position  is  untena- 
ble. It  often  happens  that  the  assured  pays  the  entire  premium  in  ad- 
vance, or  in  five,  ten,  or  twenty  annual  instalments.  Such  instalments 
are  clearly  not  intended  as  the  consideration  for  the  respective  years 
in  which  they  are  paid ;  for,  after  they  are  all  paid,  the  policy  stands 
good  for  the  balance  of  the  life  insured,  without  any  further  pay- 
ment. Each  instalment  is,  in  fact,  part  consideration  of  the  entire 
insurance  for  life.  It  is  the  same  thing,  where  the  annual  premiums 
are  spread  over  the  whole  life.  The  value  of  assurance  for  one  year 
of  a  man's  life  when  he  is  young,  strong,  and  healthy,  is  manifestly 
not  the  same  as  when  he  is  old  and  decrepit.    There  is  no  proper  re- 

8  The  statement  of  facts  is  rewritten. 


IN   GENERAL — NATURE    OF   THE    OBLIGATION  141 

lation  between  the  annual  premium  and  the  risk  of  assurance  for  the 
year  in  which  it  is  paid.  This  idea  of  assurance  from  year  to  year 
is  the  suggestion  of  ingenious  counsel.  The  annual  premiums  are  an 
annuity,  the  present  value  of  which  is  calculated  to  correspond  with 
the  present  value  of  the  amount  assured,  a  reasonable  percentage  be- 
ing added  to  the  premiums  to  cover  expenses  and  contingencies.  The 
whole  premiums  are  balanced  against  the  whole  insurance. 

But  whilst  this  is  true,  it  must  be  conceded  that  promptness  of  pay- 
ment is  essential  in  the  business  of  life  insurance.  All  the  calcula- 
tions of  the  insurance  company  are  based  on  the  hypothesis  of  prompt 
payments.  They  not  only  calculate  on  the  receipt  of  the  premiums 
when  due,  but  on  compounding  interest  upon  them.  It  is  on  this 
basis  that  they  are  enabled  to  offer  assurance  at  the  favorable  rates 
they  do.  Forfeiture  for  non-payment  is  a  necessary  means  of  pro- 
tecting themselves  from  embarrassment.  Unless  it  were  enforceable, 
the  business  would  be  thrown  into  utter  confusion.  It  is  like  the  for- 
feiture of  shares  in  mining  enterprises,  and  all  other  hazardous  un- 
dertakings. There  must  be  power  to  cut  off  unprofitable  members,  or 
the  success  of  the  whole  scheme  is  endangered.  The  insured  parties 
are  associates  in  a  great  scheme.  This  associated  relation  exits  wheth- 
er the  company  be  a  mutual  one  or  not.  Each  is  interested  in  the 
engagements  of  all ;  for  out  of  the  coexistence  of  many  risks  arises 
the  law  of  average,  which  underlies  the  whole  business.  An  es- 
sential feature  of  this  scheme  is  the  mathematical  calculations  re- 
ferred to,  on  which  the  premiums  and  amounts  assured  are  based. 
And  these  calculations,  again,  are  based  on  the  assumption  of  aver- 
age mortality,  and  of  prompt  payments  and  compound  interest  thereon. 
Delinquency  cannot  be  tolerated  nor  redeemed,  except  at  the  option 
of  the  company.  This  has  always  been  the  understanding  and  the 
practice  in  this  department  of  business.  Some  companies,  it  is  true, 
accord  a  grace  of  thirty  days,  or  other  fixed  period,  within  which 
the  premium  in  arrear  may  be  paid,  on  certain  conditions  of  con- 
tinued good  health,  &c.  But  this  is  a  matter  of  stipulation,  or  of 
discretion,  on  the  part  of  the  particular  company.  When  no  stipu- 
lation exists,  it  is  the  general  understanding  that  time  is  material, 
and  that  the  forfeiture  is  absolute  if  the  premium  be  not  paid. 
The  extraordinary  and  even  desperate  efforts  sometimes  made,  when 
an  insured  person  is  in  extremis,  to  meet  a  premium  coming  due, 
demonstrates  the  common  view  of  this  matter. 

The  case,  therefore,  is  one  in  which  time  is  material  and  of  the 
essence  of  the  contract.  Non-payment  at  the  day  involves  absolute 
forfeiture,  if  such  be  the  terms  of  the  contract,  as  is  the  case  here. 
Courts  cannot  with  safety  vary  the  stipulation  of  the  parties  by 
introducing  equities  for  the  relief  of  the  insured  against  their  own 
negligence. 

But  the  court  below  bases  its  decision  on  the  assumption  that, 
when  performance  of  the  condition  becomes  illegal  in  consequence 


142  THE    CONSIDERATION — PREMIUMS  AND    ASSESSMENTS 

of  the  prevalence  of  public  war,  it  is  excused,  and  forfeiture  does 
not  ensue.  It  supposes  the  contract  to  have  been  suspended  during 
the  war,  and  to  have  revived  with  all  its  force  when  the  war  ended. 
Such  a  suspension  and  revival  do  take  place  in  the  case  of  ordinary- 
debts.  But  have  they  ever  been  known  to  take  place  in  the  case 
of  executory  contracts  in  which  time  is  material?  If  a  Texas  mer- 
chant had  contracted  to  furnish  some  Northern  explorer  a  thou- 
sand cans  of  preserved  meat  by  a  certain  day,  so  as  to  be  ready 
for  his  departure  for  the  North  Pole,  and  was  prevented  from  fur- 
nishing it  by  the  civil  war,  would  the  contract  still  be  good  at  the 
close  of  the  war  five  years  afterwards,  and  after  the  return  of 
the  expedition?  If  the  proprietor  of  a  Tennessee  quarry  had  agreed, 
in  1860,  to  furnish,  during  the  two  following  years,  ten  thousand 
cubic  feet  of  marble,  for  the  construction  of  a  building  in  Cincin- 
nati, could  he  have  claimed  to  perform  the  contract  in  1865,  on 
the  ground  that  the  war  prevented  an  earlier  performance? 

The  truth  is,  that  the  doctrine  of  the  revival  of  contracts  sus- 
pended during  the  war  is  one  based  on  considerations  of  equity 
and  justice,  and  cannot  be  invoked  to  revive  a  contract  which  it 
would  be  unjust  or  inequitable  to  revive. 

In  the  case  of  life  insurance,  besides  the  materiality  of  time  in 
the  performance  of  the  contract,  another  strong  reason  exists  why 
the  policy  should  not  be  revived.  The  parties  do  not  stand  on 
equal  ground  in  reference  to  such  a  revival.  It  would  operate  most 
unjustly  against  the  company.  The  business  of  insurance  is  founded 
on  the  law  of  averages;  that  of  life  insurance  eminently  so.  The 
average  rate  of  mortality  is  the  basis  on  which  it  rests.  By  spreading 
their  risks  over  a  large  number  of  cases,  the  companies  calculate  on 
this  average  with  reasonable  certainty  and  safety.  Any  thing  that 
interferes  with  it  deranges  the  security  of  the  business.  If  every 
policy  lapsed  by  reason  of  the  war  should  be  revived,  and  all  the 
back  premiums  should  be  paid,  the  companies  would  have  the  benefit 
of  this  average  amount  of  risk.  But  the  good  risks  are  never 
heard  from;  only  the  bad  are  sought  to  be  revived,  where  the 
person  insured  is  either  dead  or  dying.  Those  in  health  can  get 
new  policies  cheaper  than  to  pay  arrearages  on  the  old.  To  enforce 
a  revival  of  the  bad  cases,  whilst  the  company  necessarily  lose  the 
cases  which  are  desirable,  would  be  manifestly  unjust.  An  insured 
person,  as  before  stated,  does  not  stand  isolated  and  alone.  His 
case  is  connected  with  and  co-related  to  the  cases  of  all  others  in- 
sured by  the  same  company.  The  nature  of  the  business,  as  a  whole, 
must  be  looked  at  to  understand  the  general  equities  of  the  parties. 

We  are  of  opinion,  therefore,  that  an  action  cannot  be  main- 
tained for  the  amount  assured  on  a  policy  of  life  insurance  forfeited, 
like  those  in  question,  by  non-payment  of  the  premium,  even  though 
the  payment  was  prevented  by  the  existence  of  the  war. 

The   question   then   arises,    Must   the   insured   lose    all   the   money 


IN   GENERAL — NATURE    OF   THE    OBLIGATION  143 

which  has  been  paid  for  premiums  on  their  respective  policies? 
If  they  must,  they  will  sustain  an  equal  injustice  to  that  which  the 
companies  would  sustain  by  reviving  the  policies.  At  the  very  first 
blush,  it  seems  manifest  that  justice  requires  that  they  should  have 
some  compensation  or  return  for  the  money  already  paid,  otherwise 
the  companies  would  be  the  gainers  from  their  loss ;  and  that  from 
a  cause  for  which  neither  party  is  to  blame.  The  case  may  be  il- 
lustrated thus :  Suppose  an  inhabitant  of  Georgia  had  bargained  for 
a  house,  situated  in  a  Northern  city,  to  be  paid  for  by  instalments, 
and  no  title  to  be  made  until  all  the  instalments  were  paid,  with  a 
condition  that,  on  the  failure  to  pay  any  of  the  instalments  when 
due,  the  contract  should  be  at  an  end,  and  the  previous  payments 
forfeited ;  and  suppose  that  this  condition  was  declared  by  the  parties 
to  be  absolute  and  the  time  of  payment  material.  Now,  if  some 
of  the  instalments  were  paid  before  the  war,  and  others  accruing 
during  the  war  were  not  paid,  the  contract,  as  an  executory  one, 
was  at  an  end.  If  the  necessities  of  the  vendor  obliged  him  to 
avail  himself  of  the  condition,  and  to  resell  the  property  to  another 
party,  would  it  be  just  for  him  to  retain  the  money  he  had  received? 
Perhaps  it  might  be  just  if  the  failure  to  pay  had  been  voluntary, 
or  could,  by  possibility,  have  been  avoided.  But  it  was  caused  by 
an  event  beyond  the  control  of  either  party, — an  event  which  made 
it  unlawful  to  pay.  In  such  case,  whilst  it  would  be  unjust,  after 
the  war,  to  enforce  the  contract  as  an  executory  one  against  the 
vendor,  contrary  to  his  will,  it  would  be  equally  unjust  in  him, 
treating  it  as  ended,  to  insist  upon  the  forfeiture  of  the  money 
already  paid  on  it.  An  equitable  right  to  some  compensation  or  re- 
turn for  previous  payments  would  clearly  result  from  the  circum- 
stances of  the  case.  The  money  paid  by  the  purchaser,  subject  to 
the  value  of  any  possession  which  he  may  have  enjoyed,  should,  ex 
aequo  et  bono,  be  returned  to  him.  This  would  clearly  be  demanded 
by  justice  and  right. 

And  so,  in  the  present  case,  whilst  the  insurance  company  has 
a  right  to  insist  on  the  materiality  of  time  in  the  condition  of  pay- 
ment of  premiums,  and  to  hold  the  contract  ended  by  reason  of 
non-payment,  they  cannot  with  any  fairness  insist  upon  the  con- 
dition, as  it  regards  the  forfeiture  of  the  premiums  already  paid  ; 
that  would  be  clearly  unjust  and  inequitable.  The  insured  has  an 
equitable  right  to  have  this  amount  restored  to  him,  subject  to  a 
deduction  for  the  value  of  the  assurance  enjoyed  by  him  whilst  the 
policy  was  in  existence ;  in  other  words,  he  is  fairly  entitled  to 
have  the  equitable  value  of  his  policy. 

As  before  suggested,  the  annual  premiums  are  not  the  considera- 
tion of  assurance  for  the  year  in  which  they  are  severally  paid,  for 
they  are  equal  in  amount ;  whereas,  the  risk  in  the  early  years  of 
life  is  much  less  than  in  the  later.  It  is  common  knowledge,  that 
the  annual  premiums  are  increased  with  the  age  of  the  person  ap- 


144  THE    CONSIDERATION PREMIUMS   AND    ASSESSMENTS 

plying  for  insurance.     According  to   approved   tables,   a  person  be- 
coming insured  at  twenty-five  is  charged  about  twenty  dollars  annual 
premium  on   a   policy  of   one  thousand   dollars,   whilst   a  person   at 
forty-five  is  charged  about  thirty-eight  dollars.     It  is  evident,  there- 
fore, that,  when  the  younger  person  arrives  at  forty-five,  his  policy 
has  'become,   by   reason   of   his   previous   payments,   of   considerable 
value.     Instead  of  having  to  pay,  for  the  balance  of  his  life,  thirty- 
eight  dollars  per  annum,  as  he  would  if  he  took  out  a  new  policy 
on  which  nothing  had  been  paid,  he  has  only  to  pay  twenty  dollars. 
The  difference  (eighteen  dollars  per  annum  during  his  life)  is  called 
the  equitable  value  of  his  policy.     The  present  value  of  the  assur- 
ance on  his  life  exceeds  by  this  amount   what  he  has   yet   to  pay. 
Indeed,  the  company,  if  well  managed,  has  laid  aside  and  invested 
a  reserve  fund  equal  to  this  equitable  value,  to  be  appropriated  to 
the   payment   of   his   policy   when    it    falls   due.      This    reserve   fund 
has  grown  out  of  the   premiums  already  paid.     It  belongs,   in   one 
sense,  to  the  insured  who  has  paid  them,  somewhat  as  a  deposit  in 
a  savings-bank  is  said  to  belong  to  the  person  who  made  the  deposit. 
Indeed,    some   life-insurance    companies    have   a   standing   regulation 
by  which  they  agree  to  pay  to  any  person  insured  the  equitable  value 
of  his  policy  whenever  he  wishes  it;    in  other  words,  it  is  due  on 
demand.      But   whether   thus   demandable   or   not,   the   policy   has    a 
real  value  corresponding  to  it, — a  value  on  which  the  holder  often 
realizes  money  by  borrowing.     The  careful  capitalist   does   not  fail 
to   see  that  the   present   value   of   the   amount   assured   exceeds   the 
present  value  of  the  annuity  or  annual  premium  yet  to  be  paid  by 
the   assured   party.      The    present   value   of    the    amount   assured    is 
exactly  represented  by  the  annuity  which  would  have  to  be  paid  on 
a  new  policy;    or,  thirty-eight   dollars  per  annum   in   the  case   sup- 
posed, where  the   party  is   forty-five  years   old;    whilst  the  present 
value  of  the  premiums  yet  to  be  paid  on  a  policy  taken  by  the  same 
person  at  twenty-five  is  but  little  more  than  half  that  amount.     To 
forfeit  this  excess,  which  fairly  belongs  to  the  assured,  and  is  fairly 
due  from  the  company,  and  which  the  latter  actually  has  in  its  coffers, 
and  to  do  this  for  a  cause  beyond  individual  control,  would  be  rank 
injustice.      It  would  be   taking   away  from  the   assured   that   which 
had   already  become   substantially  his   property.      It   would   be   con- 
trary to  the  maxim,   that  no  one   should  be   made   rich  by  making 
another  poor. 

We  are  of  opinion,  therefore,  first,  that  as  the  companies  elected 
to  insist  upon  the  condition  in  these  cases,  the  policies  in  question 
must  be  regarded  as  extinguished  by  the  non-payment  of  the  pre- 
miums, though  caused  by  the  existence  of  the  war,  and  that  an  ac- 
tion will  not  lie  for  the  amount  insured  thereon. 

Secondly,  that  such  failure  being  caused  by  a  public  war,  without 
the  fault  of  the  assured,  they  are  entitled  ex  aequo  et  bono  to  recover 


WHEN   THE   PREMIUM   IS   A   DEBT  145 

the  equitable  value  of  the  policies  with  interest  from  the  close  of 
the  war. 

It  results  from  these  conclusions  that  the  several  judgments  and 
the  decree  in  the  cases  before  us,  being  in  favor  of  the  plaintiffs 
for  the  whole  sum  assured,  must  be  reversed,  and  the  records  re- 
manded for  further  proceedings.  We  perceive  that  the  declarations 
in  the  actions  at  law  contain  no  common  or  other  counts  applicable 
to  the  kind  of  relief  which,  according  to  our  decision,  the  plaintiffs 
are  entitled  to  demand ;  but  as  the  question  is  one  of  first  impression, 
in  which  the  parties  were  necessarily  somewhat  in  the  dark  with 
regard  to  their  precise  rights  and  remedies,  we  think  it  fair  and 
just  that  they  should  be  allowed  to  amend  their  pleadings.  In  the 
equitable  suit,  perhaps,  the  prayer  for  alternative  relief  might  be  suffi- 
cient to  sustain  a  proper  decree ;  but,  nevertheless,  the  complainants 
should  be  allowed  to  amend  their  bill,  if  they  shall  be  so  advised. 

In  estimating  the  equitable  value  of  a  policy,  no  deduction  should 
be  made  from  the  precise  amount  which  the  calculations  give,  as  is 
sometimes  done  where  policies  are  voluntarily  surrendered,  for  the 
purpose  of  discouraging  such  surrenders;  and  the  value  should  be 
taken  as  of  the  day  when  the  first  default  occurred  in  the  payment 
of  the  premium  by  which  the  policy  became  forfeited.  In  each  case 
the  rates  of  mortality  and  interest  used  in  the  tables  of  the  com- 
pany will  form  the  basis  of  the  calculation. 

The  decree  in  the  equity  suit  and  the  judgments  in  the  actions 
at  law  are  reversed,  and  the  causes  respectively  remanded  to  be  pro- 
ceeded with  according  to  law  and  the  directions  of  this  opinion. 


II.  When  the  Premium  is  a  Debt  * 


CLARK  v.  SCHROMYER. 
(Appellate  Court  of  Indiana,  1899.    23  Ind.  App.  565,  55  N.  E.  785.) 

Action  by  James  H.  Clark,  receiver  of  the  Masonic  Benevolent 
Association  of  Central  Illinois,  against  Frederick  W.  Schromyer. 
From  a  judgment  for  defendant,  plaintiff  appeals. 

Henley,  J.  This  action  was  by  the  receiver  of  the  Masonic  Benev- 
olent Association  of  Central  Illinois,  a  foreign  corporation,  to  col- 
lect assessments  which  were  alleged  to  have  accrued  prior  to  the 
dissolution  of  the  association,  and  before  the  receiver  was  appointed. 
The    complaint    was    in    two    paragraphs.      Appellee    demurred    to 

4  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  72,  73.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  p.  82. 

CooLEY  Ins. — 10 


146  THE    CONSIDERATION — PREMIUMS  AND    ASSESSMENTS 

each  parag^raph  of  complaint.  Appellee  answered  in  two  paragraphs, 
the  first  of  which  w^as  a  general  denial.  Appellant's  demurrer  to  the 
second  paragraph  of  answer  was  overruled.  A  reply  of  general 
denial  put  the  cause  at  issue.  There  was  a  trial  by  the  court,  re- 
sulting in  a  general  finding  for  appellee.  Appellant's  motion  for  a 
new  trial  was  overruled,  and  judgment  rendered  in  appellee's  favor. 
Appellant  assigns  as  error  the  action  of  the  lower  court  in  over- 
ruling the  demurrer  to  the  second  paragraph  of  answer  and  in  over- 
ruling the  motion  for  a  new  trial.  Appellee  has  assigned  cross 
errors  separately  questioning  the  action  of  the  lower  court  in  over- 
ruling his  demurrer  to  each  paragraph  of  the  complaint. 

We  will  dispose  first  of  the  questions  arising  upon  the  assignment  of 
cross  errors,  because,  if  the  complaint  was  bad,  and  the  appellee's 
demurrer  ought  to  have  been  sustained  to  it,  it  is  not  material  whether 
or  not  subsequent  errors  intervened.  In  such  a  case  the  judgment 
of  the  lower  court  will  be  affirmed,  because  a  right  conclusion  has 
been  reached.  Ice  v.  Ball,  102  Ind.  42,  1  N.  E.  66;  Palmer  v. 
Railroad  Co.,  108  Ind.  137,  8  N.  E.  905;  Manufacturing  Co.  v. 
Booth,  10  Ind.  App.  364,  37  N.  E.  818;  Butler  v.  Railroad  Co.,  18 
Ind.  App.  656,  46  N.  E.  92. 

The  only  questions  presented  by  the  demurrer  to  the  complaint 
are  these:  Can  the  receiver  of  an  assessment  insurance  company 
collect  an  assessment  from  one  who  has  accepted  a  policy,  but  has 
ceased  paying  thereon?  Is  the  contract  unilateral,  and  is  the  only 
penalty  w^hich  follows  a  refusal  to  pay  the  loss  of  the  policy  holder's 
rights  thereunder?  These  are  new  questions  in  this  state.  Life 
insurance  contracts  have  been  universally  held  to  be  unilateral,  un- 
less, by  their  express  terms,  made  otherwise.  The  certificates  issued 
by  the  association  for  which  appellant  w-as  the  receiver  were  bene- 
ficiary certificates,  payable  upon  the  death  of  the  holders.  They 
were,  in  their  nature,  policies  of  insurance.  The  company  so  is- 
suing them  was  substantially  a  life  insurance  company.  In  May,  Ins. 
§  550,  it  is  said :  "There  are  certain  organizations  prevalent  in  this 
country  and  elsewhere  under  the  name  of  relief,  benefit,  or  benev- 
olent societies,  or  some  similar  name,  which  generally  have  for  their 
object  aid  to  their  members,  or  their  widows  and  children  after  the 
decease  of  their  respective  members.  These  associations,  though  not 
speculative,  and  not  based  upon  capital  paid  in  as  an  investment, 
have  nevertheless  a  general  purpose  of  mutual  protection.  *  *  * 
These  certificates  often  resemble,  both  in  form  and  substance,  or- 
dinary policies  of  life  insurance;  and  the  courts  have  with  great 
uniformity  treated  them  as  substantially  life  insurance  companies, 
applying  to  them  and  to  the  relatives  of  the  members^ the  rules  and 
principles  applicable  to  the  contract  of  life  insurance."  See,  also. 
Association  v.  Robinson,  147  111.  138,  35  N.  E.  168:  Rockhold  v. 
Society,  129  111.  440,  21  N.  E.  794,  2  L.  R.  A.  420;  Com.  v.  Weth- 
erbee,  105  Mass.  161. 


WHEN    THE    PREMIUM   IS   A   DEBT  147 

The  case  of  Lehman  v.  Clark,  174  111.  2/9,  51  N.  E.  222,  43  L. 
R.  A.  648,  was  in  all  respects  like  the  case  at  bar.  Appellee  in 
that  case  was  the  same  person  as  the  appellant  in  the  case  at  bar. 
Precisely  the  same  questions  were  before  the  supreme  court  of  Illinois 
as  are  here  presented.  It  was  there  held  that  the  certificate  or 
policy  of  insurance  such  as  was  issued  to  the  appellee  in  this  cause 
was  a  unilateral  contract.  The  case  of  Lehman  v.  Clark,  supra, 
was  decided  June  23,  1898,  which  was  after  the  trial  and  judgment 
in  the  case  at  bar.  The  supreme  court  of  Illinois,  in  construing 
this  contract  of  insurance,  say:  "Such  contracts  have  heretofore  al- 
ways been  considered  unilateral,  and  so  the  whole  plan  of  withdrawing 
is  embraced  in  these  self-executing  clauses  of  the  by-laws  and  con- 
tract. The  member's  failure  to  pay  is  his  declaration  of  severance, 
and  the  forfeiture  provided  for  in  the  by-laws  and  contract  is  the 
association's  compensation.  The  option  is  with  the  member,  and 
not  with  the  association.  When  the  appellant  became  a  member  he 
was  required,  among  other  things,  to  pay  a  sum  into  the  mortuary 
surplus  fund.  The  sum  was  two  maximum  assessments  on  his 
$4,000  certificate.  This  money  went  directly  into  the  fund  for  pay- 
ing death  losses;  not  a  cent  of  it  for  dues  or  expenses.  This  more 
than  paid  the  insurance  from  the  date  of  his  admission  to  the  date 
of  the  maturity  of  his  assessment  for  the  first  death  benefit  after 
he  became  a  member.  When  he  had  paid  his  first  assessment,  that 
paid  for  his  insurance  to  maturity  of  the  second,  and  so  on.  The 
requirements  for  admission,  not  only  in  this  association,  but  in  all 
benefit  associations  or  societies,  more  than  cover  the  member's  in- 
surance from  the  date  of  his  admission  to  the  first  assessment  after 
he  becomes  a  member.  The  statute  under  which  the  receiver  was 
appointed  contemplates  that,  if  the  court  shall  find  that  the  associa- 
tion cannot  longer  continue  in  operation,  and  properly  serve  its  pur- 
pose, then  the  court  shall  appoint  a  receiver,  and  wind  up  its  af- 
fairs; or  if  the  court  shall  find  that  it  might  longer  continue  in 
business,  and  properly  serve  its  purpose,  if  the  officers  would  do 
their  duty  in  making  assessments,  then  the  court  need  not  appoint 
a  receiver,  and  wind  up  the  concern,  but  may  order  an  additional 
assessment  to  be  made  to  meet  deficiencies,  and  allow  the  concern 
to  continue  in  operation.  This  shows  that  the  legislature  treated 
these  contracts  as  unilateral.  It  did  not  contemplate  the  making 
of  an  assessment  after  the  association  had  been  found  unable  to 
longer  properly  serve  its  purpose.  It  is  true  that,  a  receiver  having 
been  appointed  by  the  court,  the  court  has  power,  independent  of 
any  statute,  to  direct  him  to  collect  assets,  but  that  power  does  not 
change  the  character  of  the  contract  between  the  association  and 
the  member,  and  make  the  member  a  debtor,  who,  by  his  contract, 
is  not  so.  When  such  association  or  society  for  any  reason  becomes 
unable  longer  to  properly  carry  out  its  purpose,  some  must  lose. 
All  must  lose  except  those  who  died  andl  were  paid  before  the  as- 


148  THE    CONSIDERATION — PREMIUMS  AND    ASSESSMENTS 

sociation  became  disabled.  Those  that  have  died  and  not  been  paid 
should  have  all  that  is  left,  and  lose  the  balance;  those  that  con- 
tinue to  live  get  nothing,  and  lose  all.  But  it  is  said  those  that  con- 
tinue to  live  had  their  insurance  all  the  time.  They  had  just  that  kind 
of  insurance  that  those  that  died  had,  and  no  better,  and  paid  just 
as  much  for  it.  Those  that  have  died  get  the  surplus  fund,  and 
whatever  else  there  is,  and  those  that  have  lived  get  nothing.  The 
mistakes  or  mismanagement  which  caused  the  ruin,  if  fault  of  the 
members  at  all,  was  as  much  the  fault  of  the  dead  as  the  living, 
and  was  equally  the  misfortune  of  all." 

We  think  the  supreme  court  of  Illinois  arrived  at  the  proper  con- 
clusion. Appellant  correctly  contends  that  the  contract  should^  be 
construed  and  governed  by  the  charter  and  by-laws  of  the  society 
and  the  statute  of  the  domicile  of  the  corporation.  This  being  true, 
then  the  case  last  quoted  from  is  decisive  of  the  question  in  this  case. 

Appellant  went  to  trial  upon  an  insufficient  complaint.  The  trial 
resulted  in  favor  of  appellee.  There  being  no  cause  of  action  stated 
against  appellee,  the  judgment  of  the  lower  court  in  his  favor  was 
correct,  and  the  intervening  errors,  if  any,  will  not  be  considered. 
Judgment  affirmed.^ 


III.  Payment   of  Premiums ' 
1.  To  Whom  Paid 


AMERICAN  FIRE  INS.  CO.  v.  BROOKS. 

(Court  of  Appeals  of  Maryland,  1896.    83  Md.  22,  34  Atl.  373.) 

Action  by  Walter  B.  Brooks  and  another  against  the  American 
Fire  Insurance  Company.,  Judgment  for  plaintiffs,  and  defendant 
appeals. 

Page,  J.'^  This  is  an  action  on  a  policy  of  insurance  issued  by 
the  appellant  to  Walter  B.  Brooks  and  W.  H.  Bosley,  receivers  of 
the  Gay  Manufacturing  Company,  upon  a  steam  sawmill  and  ma- 
chinery situated  at  Bosley,  Gates  county,  N.  C.  *  *  *  Policy 
No.  5,450,  being  that  which  forms  the  subject  of  this  suit,  was  placed 
through  the  agency  of  George  B.  Coale  &  Son,  brokers  of  Balti- 
more city,  at  the  request  of   Mr.   Bosley.     Mr.  Coale  states  in  his 

6  Compare  Lebman  v.  Clark,  174  111.  279,  51  N.  E.  222,  43  L.  R.  A.  648  (1898). 
6  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  74,  75.     See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  pp.  924,  996. 
1  Part  of  the  opinion  is  omitted. 


PAYMENT    OF   PREMIUMS 


149 


testimony  that  the  policy  was  forwarded  to  him  by  Mr.  Kelley,  the 
general  agent  of  the  company,  and  was  delivered  by  himself  to  the 
receivers;  that  he  collected  the  premium,  and  paid  it  to  the  com- 
pany, less  his  commissions;  and  that  he  was  never  notified  by  it 
not  to  collect  the  premium.  He  further  testified  that  he  informed 
Mr.  Kelley  who  Messrs.  Brooks  &  Bosley  were,  and  what  business 
they  were  engaged  in.  The  policy  was  dated  the  21st  August,  1891, 
and  ran  for  one  year  from  the  20th  August. 

On  1st  August,  1892,  a  renewal  receipt  was  sent  by  Mr.  Kelley 
to  Coale  &  Son.  In  his  note  transmitting  it,  Mr.  Kelley  states  that 
he  forwards  to  the  Coales,  "according  to  order  received" ;  but  there 
is  no  evidence  that  the  plaintiffs  gave  such  an  order,  or  that  it  was 
given  by  the  Coales,  as  a  consequence  of  any  conversation  had  with 
them  or  of  any  act  for  which  they  were  responsible.  Mr.  Coale 
delivered  the  receipt  to  the  receivers,  and  received  from  them  a 
check  for  the  premium;  but,  by  reason  of  illness,  he  failed  to  remit 
the  money  to  the  company.  On  the  6th  of  October,  the  general 
agent  of  the  company  wrote  to  the  Coales:  "We  seem  to  be  without 
your  remittance  for  August  on  policy  No.  5,450,  and  will  thank 
you  for  the  same;"  and  again,  on  3d  November:  "Premium  of 
$82.50  is  still  due  on  policy  No.  5,450,"  etc. ;  "and,  unless  same 
is  paid,  we,  of  course,  will  consider  our  liability  as  having  ceased, 
after  receipt  of  this  notice."  *  *  *  Not  having  received  the 
premium  from  the  Coales,  on  the  6th  of  December  Mr.  Kelley 
caused  to  be  made  on  the  books  of  his  company  certain  entries,  which, 
in  that  office,  were  understood  to  mean  the  policy  was  canceled, 
though  that  was  not  written  in  words.  On  the  3d  of  June  the  prop- 
erty was  destroyed  by  fire.     *     *     * 

It  appears  to  be  well  settled  that,  where  one  engages  another  to 
procure  insurance,  the  person  so  employed  is  the  agent  of  the  in- 
sured, and  not  of  the  insurer,  in  all  matters  connected  with  such 
procurement.  Insurance  Co.  v.  Reynolds,  36  Mich.  502 ;  Oil  Co. 
v.  Triumph  Ins.  Co.,  64  N.  Y.  85.  This  rule  applies  to  cases  where 
the  insurance  has  been  effected  through  the  medium  of  a  broker, 
although  the  broker  may  have  solicited  the  insured  to  take  out  the 
policy.  Such  solicitations  only  cannot  constitute  the  broker  the 
agent  of  the  insurer,  so  as  to  bind  the  latter  for  the  acts,  declara- 
tions, or  omissions  of  the  former.  1  May,  Ins.  §  124a;  Insurance 
Co.  V.  Swigert,  11  111.  App.  590.  But,  when  the  broker's  employ- 
ment extends  only  to  the  procurement  of  the  policy,  his  agency  is 
not  continuing.  It  ceases  when  the  purpose  of  his  employment  has 
been  accomplished ;  that  is,  upon  the  execution  and  delivery  of  the 
policy.  Grace  v.  Insurance  Co.,  109  U.  S.  278,  3  Sup.  Ct.  207,  27 
L.  Ed.  932;  Hinkley  v.  Arey,  27  Me.  364;  Lohnes  v.  Insurance  Co., 
121  Mass.  439;  Hermann  v.  Insurance  Co.,  100  N.  Y.  411,  3  N.  E. 
341,  53  Am.  Rep.  197. 


150  THE    CONSIDERATION — PREMIUMS   AND    ASSESSMENTS 

If  the  broker  undertake  to  do  acts  outside  of  such  employment, 
the  question  for  whom  he  acts  will  depend  upon  the  special  cir- 
cumstances of  the  case ;  and,  if  the  assured  or  insurer  relies  upon 
such  acts  to  bind  the  other  party,  the  burden  of  proof  rests  upon 
him  who  seeks  to  bind  the  other  thereby,  to  prove  his  authority. 
In  the  absence  of  direct  proof  of  actual  authority,  and  where  the 
effort  is  to  bind  the  insurer,  the  insured  may  establish  the  agency 
by  showing  what  acts  the  insurer  has  permitted  the  broker  to  do, 
and  that  the  act  relied  on  ought  reasonably  to  be  inferred  to  be 
within  the  scope  of  the  apparent  authority  implied  from  such  acts. 
2  Wood,  Ins.  §  420;  Smith  v.  Insurance  Co.,  47  Hun  (N.  Y.)  Zl ; 
Pierce  v.  People,  106  111.  23,  46  Am.  Rep.  683;  Insurance  Co.  v. 
Crutchfield,  108  Ind.  518,  9  N.  E.  458;  Kausal  v.  Association,  31 
Minn.  17,  16  N.  W.  430,  47  Am.  Rep.  776. 

It  is  contended,  however,  that  these  principles  do  not  apply  to 
the  case  at  bar,  by  reason  of  this  provision  contained  in  the  policy, 
viz. :  "In  any  matter  relating  to  this  insurance,  no  person,  unless 
duly  authorized  in  writing,  shall  be  deemed  the  agent  of  this  com- 
pany." It  is  difficult,  however,  to  perceive  how  this  clause  can  be 
made  applicable  in  this  case.  The  purpose  of  the  provision  could 
not  have  been  to  take  from  the  insurance  company  the  power  to 
appoint  an  agent  by  parol,  and  thereby,  in  many  cases,  to  secure 
immunity  from  the  consequences  of  its  own  acts.  If  the  clause  is 
to  be  so  construed  as  that  although  the  company  has  expressly,  or 
by  acts  which  warrant  the  implication,  appointed  an  agent,  yet  it 
shall  not  be  responsible  for  the  conduct  of  such  agent,  while  acting 
within  the  scope  of  his  real  or  apparent  authority,  unless  such  ap- 
pointment is  in  writing,  then  the  clause  is  a  mere  trap  to  ensnare  the 
unwary  policy  holder,  and  a  device  by  which  an  insurance  company, 
for  its  own  purposes,  may  abrogate  and  repeal  the  fundamental 
principle  of  the  law  of  agency.  The  object  of  the  insertion  of  the 
clause  was  to  protect  the  company  from  the  statements,  knowledge, 
and  acts  of  persons  connected  with  the  procuring  of  the  policy,  by 
the  clear  understanding  of  the  parties  to  the  contract  that  in  any 
matter  relating  to  such  insurance  no  person,  unless  duly  authorized  in, 
writing,  shall  be  deemed  its  agent.  Banking  Co.  v.  Teiger,  90  Va. 
277,  18  S.  E.  195 ;  Grace  v.  Insurance  Co.,  109  U.  S.  278,  3  Sup. 
Ct.  207,  27  L.  Ed.  932;  Arthurhoh  v.  Insurance  Co.,  159  Pa.  7, 
28  Atl.  197,  39  Am.  St.  Rep.  659;  Insurance  Co.  v.  Lee,  7Z  Tex. 
641,  11  S.  W.  1024. 

In  this  case  the  uncontradicted  evidence  was  that  the  employment 
of  Coale  &  Son  by  the  insured  extended  only  to  the  procurement 
of  the  policy.  Their  duty  was  "to  place  the  policy."  This  being 
so,  when  the  policy  was  delivered,  their  functions  were  ended  so 
far  as  the  appellees  were  concerned.  The  policy  was  sent  to  Mr. 
Coale,  and  by  him  delivered  to  Mr.  Bosley.    To  Mr.  Coale  was  also 


PAYMENT    OF   PREMIUMS  151 

sent  the  receipt  for  the  premium  which  he  collected,  and  remitted 
to  Mr.  Kelley,  retaining  his  commissions.  One  year  later  the  re- 
newal receipt  was  forwarded  to  Mr.  Coale ;  and,  when  it  was  de- 
livered, he  again  collected  the  premium.  That  it  was  intended  by 
Mr.  Kelley  that  Coale  should  collect  the  premium,  and  remit  to  him, 
was  left  by  the  instruction  to  be  determined  by  the  jury.  The  course 
of  dealing  between  Coale  and  Kelley  in  relation  to  this  and  other 
policies,  the  inclosure  to  Coale  of  the  renewal  receipt,  and  Kelley's 
letter  of  October  6,  1892  (in  which  he  writes  to  Coale,  "We  seem 
to  be  without  your  remittance,"  etc.,  "and  will  thank  you  to  send 
the  same  forward  at  once"),  were  all  before  the  jury,  and  tended 
to  prove  what  that  intention  was.  If  they  found  the  intention  was 
that  Coale  should  deliver  the  receipt  and  collect  the  premium,  these 
payments  to  him  were  equivalent  to  payment  to  the  company.  *  *  * 
Affirmed. 


2.  TiMR  AND  Mode  of  Payment  ' 


KEN  YON   V.   KNIGHTS   TEMPLAR   &   MASONIC   MUT. 

AID  ASS'N. 

(Court  of  Appeals  of  New  York,  1890.     122  N.  Y.  247,  25  N.  E.  299.) 

Action  on  a  benefit  certificate  issued  by  the  defendant  association 
on  the  life  of  Alexander  M.  Kenyon.  A  judgment  for  plaintiff 
was  affirmed  by  the  general  term  of  the  supreme  court  for  the 
fourth  department,  and  defendant  appeals. 

Bradley,  J.a  *  *  *  fj-jg  further  question  upon  the  merits  is 
whether  the  jury  were,  by  the  evidence,  permitted  to  find  that  the 
certificate  of  insurance  was  in  force  at  the  time  of  the  death  of 
the  member. 

It  is  urged  by  the  defense  that  the  contract  had  terminated,  and 
the  right  of  the  plaintiffs  to  assert  any  claim  against  the  defendant 
upon  it  forfeited,  by  reason  of  the  default  of  Kenyon  in  making 
payment  of  an  assessment,  as  required  by  it.  The  certificate  con- 
tained the  provision  that,  if  any  assessment  should  not  be  paid 
within  10  days  after  notice  provided  by  the  by-laws  for  its  pay- 
ment, at  the  office  of  the  defendant  in  the  city  of  Cincinnati,  Ohio, 
unless  otherwise  expressly  agreed  in  writing,  or  to  its  agents  on 
production  of  a  receipt  signed  by  the  president,  vice-president,  or 
secretary,  the  certificate  should  cease  and  determine ;    and  by  a  by- 

8  See  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  3,  p.  2316. 

«  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


152  THE    CONSIDERATION PREMIUMS  AND    ASSESSMENTS 

law  indorsed  upon  the  certificate  it  was  also  provided  that  "any 
member,  failing  to  pay  his  assessment  within  ten  days  after  such 
notice  has  been  served  upon  him,  shall  forfeit  his  certificate  of 
membership  in  the  association,  and  all  benefits  therefrom;  any  mem- 
ber having-  forfeited  his  membership  by  failing  to  pay  his  assess- 
ments may  be  reinstated,  he  being  alive,  within  thirty  days  after 
said  notice  was  sent,  he  paying  all  arrearages," — and  that  such  notice 
might  be  sent  by  mail,  and  when  so  sent  should  be  deemed  a  suffi- 
cient notice  for  the  payment  of  the  assessment  required.  This, 
with  what  appears  in  the  application  upon  the  subject,  was  the  con- 
tract between  the  parties  in  that  respect,  and,  as  such,  efifectual  to 
govern  their  rights,  except  so  far  as  it  may  have  in  some  manner 
been  modified  or  strict  com.pliance  with  such  provisions  waived.  On 
March  27,  1885,  the  secretary  of  the  defendant  at  Cincinnati  mailed, 
addressed  to  Kenyon,  at  Watertown,  N.  Y.,  a  notice  that  an  as- 
sessment of  $4.75  on  his  certificate  was  then  due,  and  payable  on 
or  before  April  6,  1885;  and  added:  "Assessments  are  payable  at 
this  office  in  cash,  by  sight  draft  on  Cincinnati  or  New  York  banks, 
money  order,  or  American  or  U.  S.  Express  Co.  money  order,  pay- 
able to  Charles  Brown,  secretary;"  and  that  the  receipt  was  held 
at  the  defendant's  home  office,  where  he  could  get  it  until  April 
6th,  inclusive,  on  payment  of  the  amount,  and  where  he  could  pay 
it  after  that  date.  The  default  alleged  was  in  the  payment  of  that 
assessment. 

This  the  plaintififs  seek  to  meet  by  the  fact,  which  the  evidence  on 
their  part  tended  to  prove,  that  the  member,  on  April  4,  1885,  sent 
by  mail  from  Watertown  his  check,  drawn  upon  a  bank  there  for 
the  amount,  to  the  defendant's  secretary  at  Cincinnati,  payable  to 
the  order  of  the  latter.  It  was  sent  sufficiently  early  to  reach  by 
due  course  its  place  of  destination  within  the  10  days  mentioned  in 
the  notice,  but  it  was  not  received  by  the  defendant's  secretary,  and, 
if  it  had  reached  him  within  that  time,  he  would  not  have  been 
required  to  accept  it  in  performance  of  the  contract,  as  represented 
by  its  terms  before  mentioned.  But  the  course  of  dealing  between 
the  parties  had  been  such  that  the  member  was  at  liberty  to  assume 
that  his  check  upon  the  bank  was  receivable  by  the  defendant,  be- 
cause it  had,  uniformly  and  without  objection,  received  his  cheeky 
in  payment  for  assessments  upon  the  certificate.  So  far  the  de- 
fendant had  waived  strict  performance,  and  permitted  the  member 
to  pay  in  his  checks  as  a  substitute  for  the  method  of  payment 
mentioned  in  the  notice.  It  appeared  that,  within  a  little  more  than 
a  year  and  a  half  preceding  the  time  of  this  assessment,  Kenyon 
had  sent  to  the  secretary  15  checks,  drawn  by  him  as  this  was,  and 
upon  the  same  bank  at  Watertown,  in  payment  of  assessments,  and 
that  they  were  so  received;  but  it  is  contended  that  the  receipt  at 
the  home  office  of  the  defendant  of  that  which  the  assured  was 
permitted  to  deliver  in  payment  was  essential  to  accomplish  it.     That 


PAYMENT   OF   PREMIUMS 


153 


is  the  rule  when  nothing  appears  to  the  contrary.     Insurance  Co.  v. 
Davis,  95  U.  S.  425,  24  L.  Ed.  453.     And  such  was  the  effect  of 
the  contract  in  question,  and,  as  we  have  seen,  not  modified  by  the 
terms  of  the  notice  of  assessment.     The  method  of  doing  it  through 
the  mail  had  been  adopted  by  the  assured,  and,  akhough  many  of 
the  checks  before  sent  in  that  manner  were  not  received,  nor  were 
some  of  them  sent,  until   after  the   expiration  of  the   10   days   fol- 
lowing  the    notice,    no    question   had    been   raised.      If   that    can    be 
treated  as  waiver  of  prompt  payment,  it  is  entitled  to  consideration. 
But  it  is  with  much  force  suggested  that  payment  within  30  days 
after  notice  was  the  right  of  the  assured,  and,  when  so  made,  would 
operate  to  reinstate  his  relation  of  membership,  which  had  been  ter- 
minated by  his  default  in  payment  during  the  first  10  days,  and  there- 
fore  furnished  no  evidence  of  any  indulgence  by  the  defendant  or 
extension  of  the  time  for  payment.     It  is  difficult  to  see  any  waiver 
of   payment  within  the  time   and   at   the  place   provided   for  by   the 
contract,   unless   the   circumstances   were   such   as   to  permit  the   as- 
sured to   understand,    from  the  action   of  or  the  course  of   dealing 
with  the  defendant,  that  the  deposit  of  the  check,  properly  indorsed 
and   directed,   in  the   mail   in   due  time,   was   a   compliance   with   its 
requirement  to  save  him  from  default,  and  his  contract  of  insurance 
from  forfeiture;   or,  unless  what  occurred  by  way  of  correspondence 
between  him   and  the   defendant  after  he  had  so  mailed  the   check 
may  have  been  treated  as  such  waiver,  by   reference  to  which   this 
appears.     On   April    10th   the   secretary   wrote   Kenyon,   saying   that 
his  assessment,  payable  on  or  before  April  6th,  was  yet  unpaid;    that 
he  could  pay  it,  if  living,  any  time  before  April  27th.     "Until  such 
payment  is  made,  you  are  carrying  your  own  risk  in  case  of  death ;" 
and  after  expressing  the  wish  that  Kenyon  remain  a  member  of  the 
association,  and   saying  that,  if  the  assessment  was  not  paid  within 
that  time,  he  would  forfeit  the  certificate,  added:    "Remit  by  bank- 
check,  postal  order,  or  American  Express   Co.   order."     In   a  letter 
of  date  13th  April  to  the  secretary,  Kenyon  stated  that  he  paid  the 
assessment    April   4th;     and,    before   the   secretary's    letter   in    reply 
reached  its  destination,  Kenyon  had  died.     Those  letters  do  not,  of 
themselves,  furnish  evidence  of  purpose  of  the  defendant  to  waive 
the  payment  not  made  within  the   10  days.     It  called  the  assured's 
attention  to  the  right  the  contract  gave  him,  and  recognized  his  right 
to  pay  by  bank-check.     Further  consideration  is  due  to  the  effect  of 
the  prior  transactions  between  the  parties  in  relation  to  the  assess- 
ments, and  the  manner  of  paying  them,  upon  the  rights  of  the  parties, 
arising  out  of  the  notice  and  attempted  remittance  in  question.     The 
conditions  inserted  in  a  contract  of  insurance  for  the  benefit  of  the 
company  making  it  may  be  waived  by  it.     And  in  Insurance  Co.  v. 
Eggleston,  96  U.  S.  572,  24  L.  Ed.  841,  it  was  said  by  the  court 
"that   forfeitures   are  not   favored   in  the   law,   and   that   courts   are 
always  prompt  to  seize  hold  of  any  circumstances  that  indicate   an 


154  THE    CONSIDERATION — PREMIUMS  AND    ASSESSMENTS 

election  to  waive  a  forfeiture,  or  an  agreement  to  do  so,  on  which 
the  party  has  rehecl  and  acted.  Any  agreement,  declaration,  or 
course  of  action  on  the  part  of  an  insurance  company,  which  leads 
a  party  insured  honestly  to  believe  that  by  conforming  thereto  a 
forfeiture  of  his  policy  will  not  be  incurred,  followed  by  due  con- 
formity on  his  part,  will  and  ought  to  estop  the  company  from  in- 
sisting upon  the  forfeiture,  though  it  might  be  claimed  under  the 
express  letter  of  the  contract."  And  substantially  to  the  same  effect 
are  Meyer  v.  Insurance  Co.,  7Z  N.  Y.  516,  29  Am.  Rep.  200;  Wyman 
V.  Insurance  Co.,  119  N.  Y.  274,  23  N.  E.  907;  Helme  v.  Insur- 
ance Co.,  61  Pa.  107,  100  Am.  Dec.  621. 

If  the  check  had  been  mailed,  addressed  to  the  secretary  by  the 
direction  of  the  defendant,  the  member  would  not  have  been  in  de- 
fault, although  it  was  not  received ;  assuming,  as  we  may,  that  he 
had  the  funds  in  the  bank  to  meet  it.  Palmer  v.  Insurance  Co.,  84 
N.  Y.  63.  There  was  no  express  agreement  or  direction  to  that 
effect,  and  that  method  of  remittance  was,  for  all  purposes,  at  his 
risk,  unless  the  course  of  dealing  with  the  defendant  enabled  him  to 
believe  and  understand  that  the  mailing  of  it  would  be  effectual  to 
protect  him  against  forfeiture.  2  Greenl.  Ev.  §  525 ;  Gurney  v. 
Howe,  9  Gray  (Mass.)  404,  69  Am.  Dec.  299;  Crane  v.  Pratt,  12 
Gray  (Mass.)  348;    Morgan  v.  Richardson,  13  Allen  (Mass.)  410. 

The  distance  between  the  place  of  residence  of  the  assured  and 
the  defendant's  home  office  was  such  that  payment  of  assessments 
by  his  personal  delivery  at  the  latter  place  evidently  was  not  con- 
templated; and,  so  far  as  appears,  the  defendant  was  satisfied  with 
the  method  of  remittance  from  him  directly  to  its  officer  by  mail, 
and  such  means  of  transmission  may  have  been  within  the  expec- 
tation of  the  parties  in  view  of  their  situation ;  and  doing  it  through 
the  postal  service  might  very  well  be  deemed  no  less  safe  and  ap- 
propriate than  any  other  manner  to  make  payments  by  means  of 
bank-checks.  Buell  v.  Chapin,  99  Mass.  594,  97  Am.  Dec.  58.  As 
this  had  been  uniformly  the  manner  of  transmitting  and  accepting 
payment,  or  the  means  of  payment,  of  assessments,  adopted  by  the 
parties,  it  may  be  said  that  the  postal  medium  of  transmission  had 
in  some  sense  become  a  matter  of  usage  between  them,  having  the 
nature  of  an  implied  agreement  to  that  effect.  In  that  view  it  is 
not  essential,  for  the  purpose  of  the  question,  that  the  mailing  or 
reception  of  the  check  should  constitute  actual  payment,  or  that  it 
should  have  operated  as  such  during  the  life  of  the  assured.  Maher 
V.  Insurance  Co.,  67  N.  Y.  283.  The  parties  apparently  had  ac- 
quiesced in  that  method  of  representing  the  amount,  as  well  as  in 
the  means  of  transmission,  and  the  conclusion  was  warranted  that, 
by  the  course  of  dealing  adopted  by  the  defendant  in  that  respect, 
the  assured  may  fairly,  and  in  good  faith,  have  been  led  to  suppose 
that  the  requirement  of  the  defendant  upon  him  was  satisfied  by 
mailing,  as  he  did  in  his  customary  manner  of  doing  it,  the  check 


PAYMENT   OF   PREMIUMS  155 

for  the  amount  of  the  last  assessment.  The  proposition  was  not  nec- 
essarily overcome  by  the  fact  that  the  other  checks  were  received 
prior  to  the  time  the  assured  had  the  right  to  make  payment,  al- 
though that  may  properly  have  been  a  matter  of  consideration  by 
the  jury  upon  the  question  submitted  to  them.     *     *     *     Affirmed. 


GUILFOYLE  v.  NATIONAL  LIFE  ASS'N. 

(Supreme  Court  of  New  York.  Appellate  Division.  Second  Department,  1899. 
36  App.  Div.  343,  55  N.  Y.  Supp.  236.) 

Action  by  William  E.  Guilfoyle  against  the  National  Life  Associa- 
tion.    There  was  a  judgment  for  plaintiff,  and  defendant  appeals. 

Hatch,  J.  This  action  is  brought  to  recover  upon  a  contract  of 
insurance  issued  by  the  Mutual  Benefit  Life  Association  of  America, 
and  subsequently  transferred  to  the  defendant.  The  question  pre- 
sented by  the  appeal  relates  solely  to  the  sufficiency  of  a  payment  of 
the  premium  due  upon  the  policy  prior  to  the  death  of  the  insured. 
It  appeared  in  the  evidence  that  the  contract  of  insurance  was  issued 
in  1884.  After  its  assumption  by  the  defendant,  it  sent  to  the  in- 
sured, pursuant  to  its  contract,  from  time  to  time,  notices  of  pre- 
miums due  from  the  insured  thereunder. 

It  does  not  clearly  appear  in  the  testimony  who  paid  the  first 
premium,  but  for  the  most  part  the  premiums  were  paid  by  the 
plaintiff,  who,  with  his  sister,  were  the  beneficiaries  named  in  the 
policy;  and,  she  having  assigned  her  interest  to  the  plaintiff,  he  is 
now  the  sole  beneficiary  therein.  After  the  plaintiff  began  to  pay 
premiums,  the  usual  course  was  for  the  insured  to  receive  premium 
notices  and  deliver  them  to  the  son,  who,  except  in  one  or  two  in- 
stances, when  he  paid  by  post-office  money  order,  inclosed  the  notices, 
with  a  check,  in  an  envelope  furnished  by  the  defendant,  directed  to 
its  home  office,  in  Hartford,  Conn. ;  and  thereafter  the  notices, 
stamped  "Paid,"  were  returned  to  the  insured.  The  premium  notice 
first  sent  out  by  the  defendant  provided  that  payment  of  premium 
should  be  made  at  the  home  office  in  Hartford,  and,  pursuant  to  such 
notice,  it  recognized  payments  made  by  check  and  sent  through  the 
mail.  Under  such  a  notice  it  has  been  held  that  payment  by  check 
deposited  in  the  post  office  prior  to  the  date  when  the  premium  was 
due  was  a  good  payment,  even  though  it  was  not  received  at  the 
home  office  until  after  the  date  when  the  premium  became  due. 
Primeau  v.  Association,  77  Hun,  418,  28  N.  Y.  Supp.  794,  affirmed 
in  the  court  of  appeals  144  N.  Y.  716,  ^9  N.  E.  858. 

Some  time  after  1894,  and  as  early  as  Tune  29,  1895,  the  defendant 
attached  to  its  notice  for  the  payment  of  premiums,  in  addition  to 
what  it  had  previously  contained,  the  following  statement :  "We  in- 
close you  an  envelope  directed  to  the  company,  for  your  convenience 


156  THE    CONSIDERATION — PREMIUMS  AND    ASSESSMENTS 

in  case  you  remit  by  mail.  But  it  must  be  distinctly  understood  that 
the  association  is  not,  and  cannot  be,  responsible  for  any  loss  or  de- 
lays of  the  mails.  Mailing  of  the  amount  of  premium  is  not  payment. 
It  must  reach  the  home  office  on  or  before  the  date  due,  in  order 
to  prevent  the  policy  from  lapsing."  This  appeared  in  fine  type,  at- 
tached to  the  foot  of  the  notice.  It  does  not  appear  that  the  defend- 
ant gave  any  notice  to  the  insured  of  this  change  in  its  requirement, 
or  that  it  took  any  other  steps  to  call  the  attention  of  the  insured  to 
the  change  in  this  regard.  The  plaintiff  testifies  that  he  had  no  no- 
tice of  such  change,  and  that  it  was  not  called  to  his  attention  until 
the  trial  of  the  action,  and  then  by  his  attorney.  No  change  was 
made  in  the  manner  or  method  of  making  the  payments  of  premium 
after  the  change  in  the  notice,  and  the  defendant  continued,  as  be- 
fore, to  receive  an  envelope  directed  in  the  same  manner  as  had  been 
used  under  the  prior  form  of  notice. 

The  question,  therefore,  which  we  are  called  upon  to  decide,  is 
whether  the  plaintifif  or  the  insured,  in  making  the  payments,  was 
bound  to  take  notice  of  the  character  of  the  change  contained  in  its 
printed  statement  attached  thereto.  We  think  that  the  plaintiff  was 
not  conclusively  bound,  as  matter  of  law,  by  the  statements  contained 
in  such  notice.  On  the  contrary,  we  think  that  the  question  whether 
the  defendant  took  such  steps  as  were  fairly  calculated  to  apprise  the 
insured,  or  the  person  making  the  payments,  of  the  change  contained 
in  the  statement,  was  one  of  fact  for  the  court  or  a  jury  to  determine. 
It  is  quite  clear  that  it  would  be  most  unfair  to  the  insured  to  permit 
him  to  make  payment  in  reliance  upon  a  course  of  business  which  the 
defendant  had  permitted,  if  not  invited,  and  under  which  the  insured 
was  protected  when  he  had  placed  the  check  in  the  envelope  furnished 
by  the  defendant,  paid  the  postage  thereon,  and  deposited  the  same  in 
the  post  office.  If  the  defendant  desired  to  change  the  system,  and 
place  the  risk  of  safe  transmission  through  the  mail  upon  the  insured, 
when  he  had  theretofore  relied  upon  its  being  good,  it  should  in  plain 
and  unmistakeable  terms  call  the  attention  of  the  insured  thereto,  in  or- 
der that  he  might  have  an  opportunity  to  protect  himself  by  making 
payment  in  another  manner. 

It  is  matter  of  common  knowledge  that  changes  vital  in  character 
may  be  easily  made  by  notice  inserted  by  the  defendant  in  its  printed 
matter,  and  yet  the  same  not  be  noticed  by  the  insured,  nor  placed 
in  such  form  as  would  be  calculated  to  attract  his  attention.  In  the 
present  case  that  part  of  the  notice  which  called  for  the  payment  of 
premium  was  not  changed  from  what  it  had  theretofore  been.  At 
least,  if  there  was  change,  it  related  to  the  amount  of  the  assessment, 
and  did  not  embrace  words  showing  any  change  in  the  manner  of 
payment.  The  language  which  made  the  present  change  was  simply 
an  addition  in  the  body  of  the  printed  matter,  which  had  always  ap- 
peared upon  the  premium  notice;  so  that  a  person  receiving  this  no- 
tice, so  far  as  its  general  appearance  is  concerned,  would  find  nothing 


PAYMENT   OF   PREMIUMS  157 

about  it  that  attracted  his  attention  to  the  pregnant  matter  which  the 
fine  print  contained,  and  under  such  circumstances  might  well  assume 
that  the  notice  was  the  same  as  that  which  had  theretofore  been  sent 
out,  and  that  no  change  was  contemplated  upon  the  part  of  the  de- 
fendant. That  the  question  is  one  of  fact,  under  such  circumstances, 
has  been  decided.  Van  Bokkelen  v.  Association,  90  Hun,  330,  35  N. 
Y.  Supp.  865.  The  failure  of  the  mail  to  deliver  the  letter  contain- 
ing the  check  at  the  home  office  cannot  avail  to  defeat  the  payment. 
When  the  letter,  properly  stamped,  was  deposited  in  the  mail,  pay- 
ment was  accomplished,  under  the  circumstances  of  this  case,  and  the 
delivery  of  the  letter  at  the  home  office  was  thereafter  at  the  risk  of 
the  defendant.     Palmer  v.  Insurance  Co.,  84  N.  Y.  63. 

In  the  present  case  the  court  has  found  that  the  deposit  of  the 
check,  under  the  circumstances  presented  in  the  record,  constituted 
a  good  payment  of  the  premium.  While  it  is  true  that  the  learned 
court  based  its  decision  to  some  extent  upon  the  ground  of  waiver, 
yet  this  court  is  not  concluded  thereby.  Having  made  a  concise  state- 
ment of  the  grounds  of  its  decision,  without  stating  separately  the 
facts  found  and  the  conclusions  of  law,  the  whole  question  is  before 
this  court  for  determination  (Code  Civ.  Proc.  §  1022) ;  and  we  see 
no  reason  why  we  should  depart  from  the  holding  of  the  court  that 
the  payment  was  a  good  payment,  based  upon  the  ground  that  no 
notice  of  any  change  as  to  the  effect  of  the  payment  by  check  was 
ever  brought  to  the  attention  of  the  insured  or  of  the  plaintiff,  and 
that  the  form  in  which  the  notice  was  given  was  not  of  such  a  char- 
acter as  was  reasonably  calculated  to  call  attention  to  the  vital  change 
which  it  effected. 

It  was  not  suggested  upon  the  trial  that  the  check  which  was  mailed 
was  not  a  good  check.  The  defendant  stood  solely  upon  the  effect  of 
the  notice  which  it  had  given,  and,  consequently,  cannot  now  be  heard 
to  raise  any  such  question.  Besides,  the  plaintiff  at  all  times  stood 
ready  to  make  payment  in  money,  which  the  defendant  refused  to  re- 
ceive. 

We  see  no  reason  for  disturbing  the  judgment  of  the  trial  court. 
It  should,  therefore,  be  affirmed,  with  costs.     All  concur. 


STINCHCOMBE  v.  NEW  YORK  LIFE  INS.  CO. 

(Supreme  Court  of  Oregon,   1905.     46  Or.  .316,   SO   Pac.  213.) 

Action  by  Idonia  Stinchcombe  against  the  New  York  Life  Insur- 
ance Company.     From  a  judgment  of  dismissal,  plaintiff  appeals. 

George  W.  Stinchcombe  made  application.  May  5,  1894,  to  defend- 
ant for  insurance  on  his  life  in  the  sum  of  $2,000,  payable  to  his 
wife,  the  plaintiff.  Among  other  things,  it  was  stipulated  by  the  ap- 
plicant that  any  policy  that  might  be  issued  should  not  be  in  force 


158  THE    CONSIDERATION PREMIUMS   AND    ASSESSMENTS 

until  the  actual  payment  to  and  acceptance  of  the  premium  by  the 
company  or  its  authorized  agent  during  his  (the  applicant's)  lifetime 
and  good  health.  The  defendant  signed  and  issued  its  policy  on  July 
10th  following,  which  was  transmitted  to  Stinchcombe,  who  accepted 
it  and  paid  the  premium  of  $70.40,  being  for  two  years,  on  the  24th 
of  the  same  month.  The  policy  provides,  and  it  is  so  conditioned,  that 
it  is  made  in  consideration  of  the  written  application  therefor,  and  of 
the  agreements  and  warranties  therein  contained,  which  are  made  a 
part  of  the  contract,  and  in  further  consideration  of  $70.40,  to  be 
paid  in  advance  by  the  insured  (being  premium  for  two  years'  term 
insurance),  and  of  the  payment  of  $47.40  (being  the  life  premium), 
on  the  5th  day  of  May  every  year  thereafter  during  the  continuance 
of  the  policy. 

The  benefits  and  provisions  placed  on  the  next  page  of  the  policy 
were  also  made  a  part  of  the  contract.  Among  such  provisions  are 
found  these: 

"All  premiums  are  due  and  payable  at  the  home  ofifice  of  the  com- 
pany unless  otherwise  agreed  in  writing.  *  *  *  jf  ^my  premium 
is  not  thus  paid  on  or  before  the  day  when  due  then  (except  as  here- 
inafter otherwise  provided)  this  policy  shall  become  void,  and  all  pay- 
ments previously  made  shall  remain  the  property  of  the  company. 

"A  grace  of  one  month  will  be  allowed  in  payment  of  premiums 
on  this  policy,  subject  to  an  interest  charge  of  five  per  cent,  per  an- 
num for  the  number  of  days  during  which  the  premium  remains  due 
and  unpaid. 

"During  said  month  of  grace  the  unpaid  premium,  with  interest  as 
above,  remains  an  indebtedness  due  the  company,  and  in  the  event  of 
death  during  the  said  month,  this  indebtedness  will  be  deducted  from 
the  amount  of  the  insurance. 

WoivVERTON,  C.  J.^'*  The  first  question  presented  in  the  logical 
course  of  inquiry  is  whether  the  policy  had  lapsed  prior  to  the  de- 
cease of  Stinchcombe,  July  3,  1896.  By  its  terms  the  life  premium 
of  $47.40  is  made  payable  on  the  5th  day  of  May  in  every  year  "there- 
after," the  premium  for  two  years  in  advance  having  been  paid  on 
July  24,  1894.  Under  a  condition  of  the  application,  the  policy  was 
not  to  be  in  force  until  the  actual  payment  to  and  acceptance  of  the 
premium  by  the  company,  and  during  the  lifetime  and  good  health 
of  the  applicant.  There  was  no  binding  receipt  issued  by  the  com- 
pany, or  its  agent,  putting  the  insurance  in  force  from  the  date  of 
the  application,  to  wit.  May  5,  1894,  subject  to  the  condition  of  its 
acceptance  by  the  company  and  the  issuance  of  the  policy,  as  is  some- 
times done. 

We  have  therefore  only  to  look  to  the  terms  of  the  policy  to  ascer- 
tain when  it  became  effective  as  an  insurance  upon  the  life  of  Stinch- 
combe, and  to  determine  the  conditions  upon  which  it  might  be  con- 

10  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  re\Yritten. 


PAYMENT   OF   PREMIUMS  159 

tinued  in  force,  as  well  as  those  the  nonobservance  of  which  would 
entail  a  forfeiture.  There  was  a  care,  it  will  be  seen,  on  the  part  of 
the  company,  that  the  policy  should  not  be  in  force — that  is,  that  the 
company  should  not  itself  become  liable — except  on  the  concurrent  ex- 
istence of  certain  conditions,  namely,  the  actual  payment  of  the  pre- 
mium during  the  lifetime  and  good  health  of  the  applicant.  He  might 
have  been  living  and  in  good  health,  but  without  the  actual  payment 
of  the  premium  no  liability  would  have  been  incurred  on  its  part,  and 
that  because,  as  the  condition  reads,  the  policy  "shall  not  be  in  force." 
Now,  if  it  was  intended  that  the  policy  should  become  effective  as 
against  the  company  only  when  these  conditions  were  fulfilled  on  the 
part  of  the  applicant,  what  is  there  in  the  contractual  relations  to  put 
it  in  force  or  to  cause  it  to  become  operative  as  against  the  applicant 
in  the  meantime?  There  are  no  other  stipulations  indicating  an  in- 
tendment of  that  nature,  and,  as  we  have  seen,  there  is  no  binding 
receipt  putting  it  into  effect  at  once,  either  conditionally  or  otherwise. 
The  policy  was  issued  on  July  10,  1894,  and,  if  left  to  the  provisions 
on  the  face  of  it  alone,  would  ordinarily  have  been  effective  from 
that  date ;  but  the  application  is  made  a  part  of  it,  and  so  are  the  con- 
ditions and  provisions  on  the  next  page  following  the  signatures  of 
the  officers  of  the  company,  and  all  must  be  construed  together  to 
get  at  the  true  intendment  of  the  parties  as  they  are,  and  constitute 
in  reality  but  one  contract. 

If,  therefore,  the  policy  was  not  to  be  in  force  to  bind  the  company 
until  the  concurrence  of  the  conditions  designated,  it  is  a  most  rea- 
sonable and  fair  deduction  that  it  was  also  not  intended  that  it  should 
become  effective  as  it  concerned  the  assured  at  a  date  prior  to  their 
fulfillment.  The  defendant  either  insured  Stinchcombe  from  the  5th 
day  of  May,  or  it  did  not  insure  him  until  the  24th  day  of  July,  when 
the  policy  was  delivered  and  the  premium  paid  and  accepted  by  it. 
It  is  certain  that  it  did  not  make  itself  liable  until  the  latter  date,  and 
are  we  to  suppose  that,  without  engagement  to  that  purpose,  the  com- 
pany intended  to  collect  the  premium  and  the  insured  to  pay  for  in- 
surance he  did  not  have?  Rather  would  the  deduction  be  to  the  con- 
trary. And  such  is  our  interpretation  of  the  contract,  that  it  did 
not  become  effective  and  binding  as  an  insurance  upon  the  life  of 
Stinchcombe  until  such  latter  date,  either  to  fix  the  liability  of  the 
company  or  to  require  the  insured  to  pay  for  insurance  in  the  mean- 
while. 

Now,  the  $70.40  paid  for  two  years'  insurance.  It  is  so  expressly 
stated  in  the  policy  as  follows :  "Being  the  premium  for  two  years' 
term  insurance."  This  insurance  began  with  the  date  of  July  24,  1894, 
by  the  delivery  of  the  policy  and  the  payment  and  acceptance  of  the 
premium,  and  Stinchcombe's  life  became  insured,  not  alone  for  the 
term  of  two  years,  but  for  the  entire  term  fixed  by  the  policy  accord- 
ing to  its  provisions,  but  subject  to  forfeiture  for  the  failure  to  per- 
form those  conditions  subsequent  as  might  entail  such  a  result,  among 


160  THE    CONSIDERATION — PREMIUMS  AND    ASSESSMENTS 

which  are  those  relating  to  the  prompt  payment  of  the  premiums. 
New  York  Life  Ins.  Co.  v.  Statham,  93  U.  S.  24,  23  L.  Ed.  789.  By 
one  of  the  conditions  on  the  next  page,  so  denominated,  a  grace  of 
one  month  is  allowed  in  the  payment  of  the  annual  premiums,  subject 
to  an  interest  charge,  so  that  on  the  face  of  the  contract  there  was 
accorded  the  insured  25  months  in  which  to  make  the  second  payment 
of  premium,  thus  extending  the  time  to  June  5,  1896.  Such  premium 
not  having  been  paid  before  that  date,  a  forfeiture  was  incurred,  but 
when  did  it  become  operative?  At  once  upon  the  default  in  meeting 
the  payment,  or  at  the  end  of  the  time  for  which  the  insured  had  paid 
for  his  insurance? 

It  is  argued  that  the  forfeiture  clause  is  direct  and  unmistakable, 
and  indicates  an  intendment  that  the  policy  should  become  at  once 
void  by  reason  of  the  nonpayment  of  the  premium  on  the  day  it  was 
demandable.  It  does  not  say  so,  however,  but  that  it  "shall  become 
void."  The  interpretation  would  deprive  the  assured  of  a  period  of 
the  insurance  that  he  had  actually  paid  for,  to  wit,  from  June  5th 
to  July  24th,  so  that  the  forfeiture,  in  that  view,  would  not  only  incur 
the  penalty  of  depriving  the  assured  of  his  right  to  continue  under 
the  contract,  but  also  of  cutting  short  by  a  most  appreciable  term  the 
insurance  absolutely  obtained  by  payment  of  the  premium  for  two 
years  in  advance.  There  is  here  a  palpable  incongruity,  and,  if  the 
company's  contention  be  the  correct  one  as  to  the  proper  interpretation 
of  the  contract,  it  is  perfectly  manifest  that  it  will  be  fraught  with  in- 
justice to  the  beneficiary.  It  is  very  well  understood,  a  condition  aris- 
ing from  an  innate  sense  of  justice,  that  the  law  in  its  policy  and  spirit 
is  averse  to  the  declaration  of  forfeitures,  and  will  not  entail  such 
consequences  as  between  individuals  but  in  pursuance  of  the  plain 
and  obvious  intendment  of  contractual  relations.  It  is  also  a  canon  of 
the  construction  of  contracts,  so  well  settled  as  to  need  no  citation 
of  authorities  to  support  it,  that  inconsistent  provisions  rendering  it 
doubtful  or  uncertain  whether,  or  under  what  conditions,  a  forfeiture 
was  really  intended,  will  be  so  interpreted,  whenever  they  can,  within 
the  bounds  of  reason  and  common  fairness,  as  to  elude  the  forfeiture 
and  secure  to  the  parties  that  to  which  they  are  in  justice  entitled. 
Beyond  this  there  is  another  rule  that,  as  between  inconsistent,  con- 
flicting, and  incongruous  provisions,  of  doubtful  and  ambiguous  sig- 
nificance, in  a  policy  of  insurance,  it  being  manifest  that  the  form  and 
all  the  necessary  conditions  are  the  statements,  essentially,  of  the  offi- 
cers, agents,  and  attorneys  of  the  company,  the  construction  most 
favorable  to  the  assured  will  be  adopted  and  applied.  Fenton  v.  Fi- 
delity &  Casualty  Co.,  36  Or.  283,  56  Pac.  1096,  48  L.  R.  A.  770; 
Stringham  v.  Mutual  Life  Ins.  Co.,  44  Or.  447,  75  Pac.  822;  Na- 
tional Bank  v.  Insurance  Co.,  95  U.  S.  673,  24  L.  Ed.  563 ;  McMaster 
v.  New  York  Life  Ins.  Co.,  183  U.  S.  25,  22  Sup.  Ct.  10,  46  L.  Ed.  64. 

Now,  applying  these  plain  and  obvious  canons  of  construction  and 
interpretation,  it  is  neither  inconsistent  with  reason  nor  fair  dealing 


PAYMENT   OF   PREMIUMS  161 

to  conclude  that  the  true  intendment  of  the  contract,  looking  through 
the  whole  of  it,  including  the  application,  the  policy,  and  the  provi- 
sions on  the  next  page,  is  that  there  should  be  no  forfeiture  of  the 
insurance  paid  for— that  is,  of  any  part  of  the  "two  years'  term 
insurance" — and  that  the  policy  was  not  rendered  void,  as  affecting 
such  term  or  period,  until  its  time  had  fully  run.  This  does  not  take 
into  account  the  effect  of  the  provision  touching  the  month  of  grace 
for  making  the  payment,  because  not  involved  here.  Such,  in  effect, 
is  the  holding  of  the  Supreme  Court  of  the  United  States  in  Mc- 
Alaster  v.  New  York  Life  Insurance  Company,  supra.  In  reality, 
this  is  a  much  stronger  case  than  that  for  the  beneficiary.  It  does 
no  injustice  to  the  insurance  company  having  received  the  stipulated 
consideration,  and  it  conserves  to  the  insured  or  his  beneficiary  that 
for  which  he  has  actually  paid  his  money  in  the  way  of  premium. 
*     *     *     Reversed. 


MICHIGAN  MUT.  LIFE  INS.  CO.  v.  BOWES. 

(Supreme  Court  of  Michigan,  1879.     42  Mich.  19,  51  N.  W.  962.) 

Assumpsit  by  Mary  E.  Bowes  against  the  Michigan  Mutual  Life 
Insurance  Company.  Judgment  for  complainant.  Defendant  brings 
error.     Affirmed. 

CooivEY,  J.  There  are  no  disputed  facts  in  this  case.  On  the  15th 
day  of  November,  1873,  the  plaintiff  in  error  issued  to  Mary  E. 
Bowes,  the  defendant  in  error,  a  policy  of  insurance  by  which  the 
payment  of  $10,000  was  assured  to  her  on  the  death  of  her  husband, 
William  R.  Bowes,  in  consideration  of  the  payment  of  an  annual  pre- 
mium of  $434.80.  Mr.  Bowes  himself  effected  the  insurance,  and, 
instead  of  paying  the  first  premium  in  money,  gave  his  note  therefor. 
November  15,  1874,  the  second  premium  was  paid,  and  the  note  which 
was  given  for  the  first  was  taken  up.  November  15,  1875,  Mr.  Bowes 
gave  his  note  for  the  third  premium,  less  $62,  the  amount  of  certain 
allowances  made  to  him  by  the  insurer.  November  15,  1876,  the 
amount  of  this  note  was  added  to  the  fourth  premium,  and  two  notes 
were  given  by  Mr.  Bowes  therefor,  one  of  $538.83,  due  in  7  months, 
with  10  per  centum  interest,  and  one  of  $222.39,  due  in  60  days.  This 
last  note  when  it  fell  due  was  renewed  for  90  days,  and  was  made 
to  bear  10  per  centum  interest.  Neither  of  these  notes  was  ever  paid. 
The  premium  which  fell  due  on  November  15,  1877,  was  not  paid, 
nor  was  any  note  or  other  security  given  for  it.  Mr,  Bowes  died 
November  17,  1878. 

It  was  provided  in  the  policy  that,  if  the  premiums  should  not  be 
paid  when  due,  the  company  should  not  be  liable  for  the  payment  of 
the  sum  insured,  or  any  part  thereof,  and  the  policy  should  cease  and 
determine,  excepting  only  that  on  the  surrender  of  the  policy  duly 
receipted,  within  one  year  after  an  accrued  premium  was  due,  the  in- 
CooLEY  Ins. — 11 


1G2  THE    CONSIDERATION — PREMIUMS  AND    ASSESSMENTS 

sured  being  then  alive,  the  company  would  issue  a  paid-up  policy 
for  the  amount  the  surrender  value  u'ould  purchase  as  a  single  pre- 
mium. Claiming  that  the  notes  were,  in  legal  effect,  payments  of  the 
premiums  for  which  they  had  been  given,  Mrs.  Bowes  on  November 
8,  1878,  tendered  to  the  company  a  surrender  of  the  policy,  and  de- 
manded a  paid-up  policy  for  the  surrender  value,  which  the  company 
refused  to  issue  while  the  notes  remained  unpaid.  The  surrender 
value  would  at  that  time  have  purchased  a  paid-up  policy  for  $1,210.- 
85.  For  this  sum  Mrs.  Bowes  thereupon  brought  suit,  and  in  the  cir- 
cuit court  recovered  judgment. 

There  was  no  express  agreement  to  receive  the  notes  in  payment 
of  the  premiums,  and  it  is  therefore  insisted  that,  according  to  the 
well-settled  rule  in  this  state,  they  cannot  amount  to  payment  until 
actually  paid.  Gardner  v.  Gorham,  1  Doug.  507 ;  Hotchin  v.  Secor, 
8  Mich.  494.  It  appears,  however,  that  renewal  receipts  were  given 
when  the  notes  were  taken,  so  that  by  the  express  act  of  the  com- 
pany the  policy  was  kept  alive,  and  the  company  precluded  from  any 
right  to  insist  upon  a  forfeiture  up  to  November  15,  1877. 

In  determining  whether  the  notes  shall  be  considered  payments,  it 
is  important  to  note  that  the  paper  given  for  premiums  was  not  the 
paper  of  the  insured.  It  was,  indeed,  the  paper  of  the  person  on 
whose  life  the  risk  was  taken,  but.  had  Mrs.  Bowes  given  the  paper 
of  any  third  person,  the  case  would  have  been  no  different.  The 
company  has  taken  the  paper  of  another  person  than  the  assured  for 
the  premiums  the  assured  was  to  pay,  and,  if  the  paper  is  paid,  will 
receive  a  large  interest  thereon.  Now,  although  it  is  conceded  that 
the  taking  of  this  paper  was  for  the  accommodation  of  the  assured, 
it  is  nevertheless  a  legal  presumption  that  the  insurer  found  it  to  its 
interest  to  make  the  arrangement,  so  that  the  delay  in  the  payment, 
in  consideration  of  the  promise  to  pay  interest,  is  to  be  considered  as 
agreed  upon  for  the  mutual  advantage  of  the  parties ;  and,  had  the 
notes  been  paid  at  any  time  prior  to  the  demand  for  a  paid-up  policy, 
it  cannot  be  disputed  that  Mrs.  Bowes  would  have  been  entitled  to 
receive  it. 

But,  although  the  notes  were  not  then  paid,  the  insurance  company 
had  an  undoubted  right  to  proceed  and  collect  them,  together  with  the 
interest,  which  was  the  legal  inducement  for  giving  credit.  The  com- 
pany might  also  have  sold  them,  and  this,  as  between  the  company 
and  Mrs.  Bowes,  would  have  been  equivalent  to  collection ;  and  the 
notes,  so  far  as  we  know,  remain  in  the  hands  of  the  company  as 
its  property  to  this  day,  and  may  be  collected  of  the  estate  of  Mr. 
Bowes,  if  that  is  solvent. 

Under  these  circumstances,  we  are  of  the  opinion  that  the  insurance 
company  is  precluded  from  denying  that  the  notes  were  taken  in  pay- 
ment for  the  premiums.  As  has  been  stated  above,  there  could  have 
been,  under  the  circumstances,  no  forfeiture  of  the  policy  prior  to 
November  15,   1877.     It  was  in  full  force  at  that  day,  and,  if  the 


rORFEITURE  163 

premium  then  falling  due  had  been  tendered,  the  company  could  not 
have  refused  it  because  of  the  notes  remaining  unpaid.  Now,  al- 
though the  contract  provides  that  a  policy  for  the  surrender  value 
must  be  demanded  within  one  year  from  the  time  an  accrued  premium 
was  due,  we  think  this  means  an  accrued  premium  for  the  non-pay- 
ment of  which  the  company  had  a  right  to  determine  the  policy;  and 
there  was  no  such  accrued  premium  due  until  November  15,  1877,  the 
company  having  expressly  renewed  the  policy  to  that  day. 

There  is  another  consideration  which  is  not  unimportant.  The  fair 
meaning  of  the  policy,  and  of  the  statute  in  accordance  with  which 
it  was  given,  is  that  the  insured,  when  he  becomes  unable  or  for  any 
reason  fails  to  keep  up  his  payments,  shall  have  the  advantage  of  all 
he  has  made,  in  a  paid-up  policy  proportioned  to  the  amount.  If, 
instead  of  receiving  currency,  the  company  has  taken  the  commercial 
paper  of  third  persons,  which  may  be  collected  afterwards,  it  is  ob- 
vious that  the  assured  cannot  have  the  full  benefit  of  his  contract, 
unless  such  paper  is  treated  as  payment.  Suppose,  for  example,  that 
Mr.  Bowes  were  still  living,  and  that  his  notes  should  now  be  col- 
lected, it  is  manifest  that  the  company  would  then  receive  the  full 
benefit  of  the  contract  on  its  side,  including  full  consideration  for 
the  delay,  but  that  the  insured  would  be  wholly  deprived  of  the  ben- 
efit promised  to  her  in  a  surrender  policy,  if  any  other  view  were 
taken  than  is  here  adopted. 

We  think  the  judgment  must  be  affirmed,  with  costs.  If  in  this 
particular  case  the  company  proves  to  be  a  loser  in  consequence  of 
the  insolvency  of  the  maker  of  the  notes,  it  is  a  result  that  can  be 
provided  against  in  the  future  by  express  stipulations. 


IV.  Forfeitures^ 


PERRY  V.  BANKERS'  LIFE  INS.  CO. 

(Supreme  Court  of  New  York,  Appellate  Division.   First  Department,  1900. 
47  App.  Div.  567,  62  N.  Y.   Supp.  553.) 

Action  by  Marie  B.  Perry  against  the  Bankers'  Life  Insurance  Com- 
pany of  the  City  of  New  York.  From  a  judgment  for  plaintifif,  de- 
fendant appeals. 

RuMSE^Y,  J.s^  The  action  was  brought  to  recover  on  a  policy  of 
life  insurance  issued  to  the  plaintiff's  husband   in  September,    1895, 

11  For  discussion  of  principles,  see  Vance  on  Insurance,  §  77.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  3,  pp  2257-2434. 

12  Part  of  the  opinion  of  the  court,  as  also  the  dissenting  opinion  of  Pat- 
terson, J.,  are  omitted. 


164  THE    CONSIDERATION — PREMIUMS   AND    ASSESSMENTS 

and  payable  at  his  death  to  her.  The  insured  died  on  the  27th  of 
March,  1898.  The  necessary  steps  were  taken  to  entitle  the  plaintiff 
to  the  payment  of  the  policy,  and  the  only  defense  is  that  it  has  been 
forfeited  by  nonpayment  of  the  premium  said  to  be  due  on  the  21st 
day  of  March,  1898.     *     *     * 

The  policy  was  made  on  the  21st  day  of  June,  1895,  upon  an  appli- 
cation which  is  found  in  the  case,  and  dated  the  24th  of  April  in  the 
same  year.     It  was  stated  in  the  application  that  the  premiums  were 
to  be  paid  quarterly  ($23.50).     The  policy  purports  to  have  been  is- 
sued in  consideration  of  the  application,  and  of  all  statements  made 
therein  and  to  the  medical  examiner,  and  of  the  stipulations  and  agree- 
ments on  the  back  of  the  policy,  all  of  which  were  made  a  part  of 
the  contract,  and  in  further  consideration  of  the  sum  of  $23.50  in  full 
payment  of  the  first  premium  on  this  policy  from  this  date  until  the 
21st  day  of  September,  1895,  and  the  further  payment  of  all  premi- 
ums coming-  due  on  this  policy  in  accordance  with  its  terms  and  the 
constitution  and  by-laws  of  the  company.     The  policy  itself  contains 
upon   its   face  nothing   further  with   regard  to  the   payment  of   the 
premiums.     There  is  upon  the  back  of  the  policy  something  over  a 
page  of  print,  which  is  headed,  "Stipulations  and  Agreements."     All 
that  is  said  with  regard  to  the  payment  of  premiums  in  these  stipu- 
lations is  that  they  may  be  paid  annually,  semiannually,  or  quarterly, 
in  accordance  with  the  rates  in  the  following  table,  subject  to  deduc- 
tion by  dividends  as  aforesaid;    and  that  any  unpaid  semiannual  or 
quarterly  installment  of  the  current  year's  premium,  or  any  indebted- 
ness to  the  company,  will  be  deducted  in  the  settlement  of  the  policy; 
and  the  further  provision  that  each  premium  is  due  and  payable  at 
the  home  office  of  the  company,  but,  for  convenience,  it  will  be  ac- 
cepted by  an  authorized  agent  at  some  other  place.     There  is  nothing 
else,  either  in  the  policy  or  in  the  stipulations  and  agreements,  with 
regard  to  the  payment  of  premiums.     The  by-laws  contain  a  provi- 
sion that  premiums  must  be  paid  on  the  day  they  become  due  by  the 
terms  of  the  policy,  and  a  failure  to  pay  the  same  on  that  day  will 
work  a  forfeiture  of  the  policy  and  all  benefits  thereunder.     But  this 
provision  is  not  made  a  part  of  the  policy,  by  its  terms. 

It  is  alleged  that  a  premium  which  was  due  on  the  21st  of  March, 
1898,  was  not  paid,  and  for  that  reason  it  is  said  that  the  policy  had 
become  forfeited.  The  rule  is  well  settled  that  no  strained  or  forced 
construction  of  a  contract  will  be  resorted  to  for  the  purpose  of  es- 
tablishing a  forfeiture,  but  that,  to  warrant  a  party  in  insisting  that 
his  adversary  has  forfeited  any  rights  which  he  would  be  entitled  to 
by  a  contract  between  them,  he  must  put  his  finger  upon  the  specific 
provision  of  the  contract  which  requires  the  party  against  whom  the 
forfeiture  is  alleged  to  do  the  thing  the  failure  to  do  which  is  relied 
upon  to  work  a  forfeiture.  The  breach  of  the  contract  here,  upon 
which  the  defendant  insists  as  constituting  a  forfeiture,  is  a  failure 
to  pay  the  premium  when  it  became  due  by  the  terms  of  the  policy, 


FORFEITURE  165 

and  so  it  is  essential  to  see  when  it  did  become  due  by  those  terms 
of  the  policy. 

It  will  be  noticed  that  there  is  no  direct  agreement  on  the  part  of 
the  plaintiff,  nor  any  requirement  in  the  policy,  or  in  the  stipulations 
and  agreements  which  are  made  a  part  of  it,  or  in  the  application,, 
that  the  premiums  shall  be  paid  on  any  particular  day.  The  amount 
of  the  premiums  is  fixed.  It  is  to  be  $23.50,  payable  quarterly ;  and 
the  first  premium  paid  at  the  date  of  the  policy  is  said  to  be  a  pay- 
ment up  to  the  21st  day  of  September,  1895,  and  it  is  said  that  the 
other  premiums  are  to  be  paid  quarterly.  But  it  is  nowhere  said,  ei- 
ther in  the  application  or  the  policy  or  the  stipulations  and  agree- 
ments, that  they  are  to  be  paid  on  any  particular  day ;  and  from  the 
provision  in  the  stipulations  and  agreements,  that  any  unpaid  quar- 
terly installment  of  the  current  year's  premium  will  be  deducted  in 
settlement  of  the  policy,  it  is  fairly  to  be  inferred  that  there  was  in 
the  minds  of  the  parties  at  the  time  the  contract  was  made  an  inten- 
tion that  the  quarterly  premiums  might  not  necessarily  be  paid  at 
the  end  of  the  quarter,  which  in  this  case  was  the  21st  of  March,  1898. 
In  order  to  establish  that  the  payment  of  the  premiums  was  to  take 
place  on  the  21st  of  March,  the  defendant  resorts  to  an  indorsement 
on  the  back  of  the  policy,  which  is  as  follows : 

"No.  1.544.     Bankers'  Life  Insurance  Company  of  the  City  of  New 
York.     Insurance  on  the  Life  of  N.  W.  Perry. 
"Amount,  $5,000. 
"Premium,  $23.50. 

"Payable  on  the  21st  day  of  June.  Sept.,  Dec,  Mch. 
"Dated  June  21,  1895." 

This  is  the  usual  indorsement  put  upon  every  insurance  policy  by 
the  company  before  it  is  issued,  and,  although  it  is  on  the  back  of 
this  policy,  it  is  no  part  of  the  stipulations  and  agreements,  which 
alone  are  made  a  part  of  the  policy,  and  constitute  the  contract  be- 
tween the  parties.  Therefore,  although  this  indorsement  may  be  re- 
garded, perhaps,  as  a  suggestion  of  what  was  intended  by  the  defend- 
ant, it  cannot,  except  by  a  very  strained  construction,  be  said  to  be 
any  part  of  the  policy,  so  as  to  be  binding  upon  the  plaintiff,  or  to 
constitute  any  of  its  terms,  so  that  a  violation  of  a  suggestion  con- 
tained in  it  shall  be  sufficient  to  forfeit  the  policy. 

But  it  is  said  that  a  construction  has  been  put  upon  the  policy  by 
the  act  of  the  parties,  as  the  result  of  which  the  premium  became  pay- 
able on  the  21st  of  March,  1898.  It  is  undoubtedly  true  that  a  notice 
was  given  to  Perry,  from  time  to  time,  that  a  particular  premium  com- 
ing due  at  a  particular  time  had  not  been  paid ;  and  it  is  quite  proba- 
ble that  whenever  he  received  that  notice  he  complied  with  the  de- 
mand of  the  defendant  by  giving  it  a  certificate  of  health,  if  he  paid 
the  premium  after  the  21st  day  of  the  month.  But  those  acts  do  not 
constitute  any  part  of  the  terms  of  the  policy,  for  the  purpose  of  au- 
thorizing a  forfeiture.     If,  when  this  notice  had  been  served  upon 


166  THE    CONSIDERATION PREMIUMS   AND    ASSESSMENTS 

Perry,  he  had  said  that  the  contract  did  not  provide  for  the  payment 
of  a  premium  on  the  21st  day  of  September,  1895,  but  that  he  had 
a  reasonable  time  to  pay  it,  no  one  could  have  said  that  he  had  vio- 
lated the  terms  of  the  policy ;  and  the  fact  that  he  acceded  to  this 
demand  does  not  change  his  rights  to  insist  upon  the  precise  terms 
of  the  policy,  when  the  defendant  tries  to  forfeit  the  terms  of  the 
contract. 

The  judgment  must  be  affirmed,  v^ith  costs.     All  concur,  except 
Patterson,  J.,  who  dissents. ^^ 


V.  Excuses  for  Nonpayment 


14 


THOMPSON  V.  KNICKERBOCKER  LIFE  INS.  CO. 

(Supreme  Court  of  United  States,  1881.     104  U.  S.  252,  26  L.  Ed.  765.) 

Error  to  the  circuit  court  of  the  United  States  for  the  Southern 
district  of  Alabama. 

This  was  an  action  on  a  policy  of  insurance  for  $5,000,  issued  by 
the  Knickerbocker  Life  Insurance  Company,  the  defendant  in  error, 
on  the  life  of  John  Y.  Thompson,  for  the  benefit  of  his  wife,  Ruth 
E.  Thompson,  the  plaintiff  in  error.  The  policy  bore  date  Jan.  24, 
1870,  and  was  to  continue  during  his  life,  in  consideration  of  an  an- 
nual premium  of  $410.20,  payable  on  or  before  the  twenty-fourth  day 
of  January  in  every  year.  He  died  Nov.  3,  1874.  The  complaint  was 
in  the  usual  form,  setting  forth  the  contract  contained  in  the  policy, 
his  death,  and  the  performance  of  the  conditions  of  the  policy  by  him 
and  the  plaintiff.  The  company  pleaded  the  general  issue,  and  two 
special  pleas,  which  set  up  in  substance  the  same  defence.  The  sec- 
ond plea,  after  setting  forth  the  provisions  of  the  policy  for  the  pay- 
ment of  the  annual  premium,  proceeds  as  follows: 

"Under  said  policy  an  annual  credit  or  loan  of  a  portion  of  said 
premium  was  provided  for,  and  said  policy  also  contained  a  condition 
or  proviso  that  the  omission  to  pay  the  said  annual  premium  on  or 
before  twelve  o'clock  noon  on  the  day  or  days  above  designated  for 
the  payment  thereof,  or  that  the  failure  to  pay  at  maturity  any  note, 
obligation,  or  indebtedness  (other  than  the  annual  credit  or  loan)  for 
premium  or  interest  due  under  said  policy  or  contract,  shall  then  and 
thereafter  cause  said  policy  to  be  void  without  notice  to  any  party  or 
parties  interested  therein. 

13  Compare  New  York  Life  Ins.  Co.  v.  Statham,  ante,  p.  140. 
1-*  For  discussion  of  principles,  see  Vance  on  Insurance,  §  78.     See,  also, 
Cooley,  Briefs  on  tlie  Law  of  Insurance,  vol.  3,  p.  2328. 


EXCUSES  FOR  NONPAYMENT  1C7 

"The  defendant  further  says  that  the  said  annual  premium  was  not 
paid  on  or  before  the  twenty-fourth  day  of  January,  A.  D.  1874,  and 
thereupon  the  defendant  did  give  time  for  the  i)ayment  of  said  premi- 
um upon  the  condition  named  in  the  note  hereinafter  mentioned,  and 
for  the  payment  of  said  premium  did  take  certain  promissory  notes 
of  said  Thompson,  one  of  which  was  as  follows: 
"$109.  New  York,  Jan'y  24th,  1874. 

"Nine  months  after  date,  without  grace,  I  promise  to  pay  to  the 
Knickerbocker  Life  Insurance  Company  one  hundred  and  nine  dol- 
lars, at  Mobile,  Alabama,  value  received,  in  premium  on  policy  No. 
2334,  which  policy  is  to  be  void  in  case  this  note  is  not  paid  at  ma- 
turity, according  to  contract  in  said  policy. 

"No.  2334  was  an  error,  No.  2331  being  intended." 

It  then  avers  that  the  note  was  not  paid  when  it  became  due,  Oct. 
24,  1874,  and  that  by  reason  thereof  the  policy  became  void  and  of 
no  effect  before  the  death  of  the  assured. 

To  these  pleas  four  replications  were  filed,  numbered  2,  3,  4,  and 
.5,  as  follows: 

"2.  That  the  said  policy  of  insurance  was  renewed  by  said  defend- 
ant on  the  twenty-fourth  day  of  January,  1874,  and  continued  in  force 
until  Jan.  24,  1875.  That  the  payment  of  said  note  at  maturity  was 
not  a  condition  precedent  as  alleged.  That  the  said  Thompson  had 
the  money  in  hand,  was  ready  and  willing  and  intended  to  pay  said 
note,  but  that  before  the  maturity  thereof  he  was  taken  violently  ill, 
and  before  and  at  the  time  the  same  fell  due  was  in  bed,  prostrated 
by  a  fatal  disease,  and  in  this  condition  remained  until  he  died  on  the 
third  day  of  November,  1874;  that  during  all  this  time  he  was  men- 
tally and  physically  incapable  of  attending  to  his  business,  or  know- 
ing of  and  performing  his  obligations,  and  was  non  compos  mentis; 
that  the  existence  of  said  note  was  not  known  to  the  plaintiff. 

"3.  That  it  was,  and  had  been  for  many  years  before,  and  on  the 
day  said  note  fell  due,  the  uniform  usage  and  custom  of  said  defend- 
ant in  such  cases  to  give  notice  of  the  day  of  payment  to  its  policy- 
holders ;  such  is  and  was  the  uniform  usage  and  custom  with  all  in- 
surance companies,  and  the  said  defendant  had  in  all  cases  adopted 
and  acted  on  said  usage,  and  in  all  dealings  with  said  Thompson  had 
adhered  to  said  usage,  and  gave  notice  of  the  day  when  such  payments 
fell  due ;  yet  said  defendant  in  this  case  failed  to  give  any  notice  of 
the  day  of  payment  of  said  note,  notwithstanding  they  knew  said 
Thompson  was  in  the  city  of  Mobile,  and  was  sick.  Plaintiff'  avers 
that  said  Thompson  was  ready  and  willing  to  pay,  had  said  notice 
been  served  as  in  previous  cases,  but  acting  on  said  usage  he  was 
deceived  by  want  of  said  notice,  and  that  the  plaintiff  had  no  notice 
■of  the  existence  of  said  note,  or  when  the  same  fell  due,  wherefore 
and  whereby  said  note  was  not  paid. 

"4.  That  on  the  twenty-fourth  day  of  January,   1874,  said  policy 
•was  renewed  and  entered  in  full  force  for  one  year,  to  wit,  until  Jan. 


168  THE    CONSIDERATION PREMIUMS   AND    ASSESSMENTS 

24,  1875.  That  said  note  was  for  the  balance  of  the  premium  of 
that  year,  which  defendant  agreed  should  be  deferred  and  paid  as  set 
out  on  said  note;  that  by  said  ag-reement  said  poHcy  was  not  to  be- 
come void  on  the  non-payment  of  the  note  alone  at  maturity  as  al- 
leged in  said  plea,  but  was  to  become  void  at  the  instance  and  elec- 
tion of  said  defendant,  and  plaintiff  avers  that  said  defendant  did 
not  elect  to  cancel  said  policy  or  take  any  steps  to  avoid  it  or  give 
any  notice  of  such  intention  during  the  life  of  said  John  Y.  Thomp- 
son, or  since,  and  still  holds  said  note  against  said  estate  of  said 
Thompson. 

"5.  And  for  further  replication  to  the  first  and  second  special  pleas 
by  said  defendant  pleaded,  plaintiff  says  that  it  was  the  general  usage 
and  custom  adopted  by  said  defendants,  and  practised  by  them  before 
and  after  the  making  of  said  note,  not  to  demand  punctual  payment 
of  such  premium  notes  on  the  days  they  fell  due,  but  to  give  days 
of  grace  thereon,  to  wit,  for  thirty  days  thereafter,  and  the  said 
defendants  had  repeatedly  so  done  with  said  Thompson  and  others, 
and  they  led  said  Thompson  to  believe  and  rely  on  such  leniency  in 
this  case,  and  thereby  said  Thompson  was  deceived,  and  said  note  not 
paid,  and  he  did  rely  on  them  for  such  notice." 

Demurrers  to  these  replications  were  sustained  by  the  court.  The 
case  was  then  tried  upon  the  plea  of  the  general  issue.  On  the  re- 
jection of  evidence  at  the  trial,  the  same  questions  presented  by  the 
replications  were  raised.  Exceptions  were  taken  in  due  form  and  pre- 
served on  the  record. 

There  was  a  judgment  for  the  defendant.  The  plaintiff  thereupon 
sued  out  this  writ  of  error. 

Mr.  Justice  Bradi,ey,  after  stating  the  facts,  delivered  the  opinion 
of  the  court. 

The  questions  presented  for  review  in  this  case  arise  on  the  rulings 
of  the  court  below  on  the  demurrers  of  the  defendant. 

It  appears  from  the  special  pleas  that  the  policy  contained  the  usual 
condition  that  it  should  become  void  if  the  annual  premiums  should 
not  be  paid  on  the  day  when  they  severally  became  due,  or  if  any  notes, 
given  in  payment  of  premiums  should  not  be  paid  at  maturity. 

The  replications  do  not  pretend  that  the  note  given  for  premium,, 
which  became  due  on  the  twenty-fourth  day  of  October,  1874,  was 
ever  paid,  or  that  payment  thereof  was  ever  tendered,  either  during 
the  life  of  Thompson  or  after  his  death;  but  it  is  contended  that 
such  payment  was  not  necessary  in  order  to  avoid  the  forfeiture 
claimed  by  the  defendant. 

First,  it  is  contended  that  the  mere  taking  of  notes  in  payment  of 
the  premium  was,  in  itself,  a  waiver  of  the  conditional  forfeiture  r 
and  for  this  reference  is  made  to  the  case  of  Insurance  Co.  v.  French, 
30  Ohio  St.  240,  27  Am.  Rep.  443.  But,  in  that  case,  no  provision 
was  made  in  the  policy  for  a  forfeiture  in  case  of  the  nonpayment 
of  a  note  given  for  the  premium,  and  an  unconditional  receipt   for 


EXCC8ES   FOR    NONPAYMENT  160 

the  premium  had  been  given  when  the  note  was  taken ;  and  this  fact 
was  specially  adverted  to  by  the  court.  We  think  that  the  decision 
in  that  case  was  entirely  correct.  But  in  this  case  the  policy  does 
contain  an  express  condition  to  be  void  if  any  note  given  in  payment 
of  premium  should  not  be  paid  at  maturity.  We  are  of  opinion,  there- 
fore, that  whilst  the  primary  condition  of  forfeiture  for  non-payment 
of  the  annual  premium  was  waived  by  the  acceptance  of  the  notes, 
yet,  that  the  secondary  condition  thereupon  came  into  operation,  by 
which  the  policy  was  to  be  void  if  the  notes  were  not  paid  at  maturity. 
Beside  this  general  answer  the  plaintiff  set  up,  in  her  replications, 
various  excuses  for  not  paying  the  note  in  question,  which  are  relied 
on  for  avoiding  the  forfeiture  of  the  policy. 

In  the  second  replication  the  excuse  set  up  is,  that  before  the  note 
fell  due  Thompson  became  sick  and  mentally  and  physically  incapable 
of  attending  to  business  until  his  death  on  the  third  day  of  November, 
1874,  and  that  the  plaintiff  was  ignorant  of  the  outstanding  note.  We 
have  lately  held,  in  the  case  of  Klein  v.  Insurance  Co.,  supra,  that 
sickness  or  incapacity  is  no  ground  for  avoiding  the  forfeiture  of  a 
life  policy,  or  for  granting  relief  in  equity  against  forfeiture.  The 
rule  may,  in  many  cases,  be  a  hard  one ;  but  it  strictly  follows  from 
the  position  that  the  time  of  payment  of  premiums  is  material  in  this 
contract,  as  was  decided  in  the  case  of  Insurance  Co.  v.  Statham,  93 
U.  S.  24,  23  L.  Ed.  789.  Prompt  payment  and  regular  interest  con- 
stitute the  life  and  soul  of  the  life  insurance  business ;  and  the  senti- 
ment long  prevailed  that  it  could  not  be  carried  on  without  the  ability 
to  impose  stringent  conditions  for  delinquency.  More  liberal  views 
have  obtained  on  this  subject  in  recent  years,  and  a  wiser  policy  now 
often  provides  express  modes  of  avoiding  the  odious  result  of  forfei- 
ture. The  law,  however,  has  not  been  changed,  and  if  a  forfeiture  is 
provided  for  in  case  of  non-payment  at  the  day,  the  courts  cannot 
grant  relief  against  it.  The  insurer  may  waive  it,  or  may  by  his  con- 
duct lose  his  right  to  enforce  it ;   but  that  is  all. 

The  third  replication  sets  up  a  usage,  on  the  part  of  the  insurance 
company,  of  giving  notice  of  the  day  of  payment,  and  the  reliance  of 
the  assured  upon  having  such  notice.  This  is  no  excuse  for  non- 
payment. The  assured  knew,  or  was  bound  to  know,  when  his  pre- 
miums became  due.  Insurance  Co.  v.  Eggleston,  96  U.  S.  572,  24  L. 
Ed.  841,  is  cited  in  support  of  this  replication.  But,  in  "that  case,  the 
customary  notice  relied  on  was  a  notice  designating  the  agent  to  whom 
payment  was  to  be  made,  without  which  the  assured  could  not  make 
it,  though  he  had  the  money  ready.  As  soon  as  he  ascertained  the 
proper  agent  he  tendered  payment  in  due  form.  It  is  obvious  that  the 
present  case  is  very  different  from  that.  The  reason  why  the  insur- 
ance company  gives  notice  to  its  members  of  the  time  of  payment  of 
premiums  is  to  aid  their  memory  and  to  stimulate  them  to  prompt 
payment.  The  company  is  under  no  obligation  to  give  such  notice, 
and  assumes  no  responsibility  by  giving  it.     The  duty  of  the  assured 


170  THE    CONSIDERATION PREMIUMS   AND    ASSESSMENTS 

to  pay  at  the  day  is  the  same,  whether  notice  be  given  or  not.  Banks 
often  give  notice  to  their  customers  of  the  approaching  maturity  of 
their  promissory  notes  or  bills  of  exchange ;  but  they  are  not  obliged 
to  give  such  notice,  and  their  neglect  to  do  it  would  furnish  no  excuse 
for  non-payment  at  the  day. 

The  fourth  replication  sets  up  a  parol  agreement  of  defendant  made 
on  receiving  the  promissory  note,  that  the  policy  should  not  become 
void  on  the  non-payment  of  the  note  alone  at  maturity,  but  was  to 
become  void  at  the  instance  and  election  of  the  defendant,  which  elec- 
tion had  never  been  made.  As  this  supposed  agreement  is  in  direct 
contradiction  to  the  express  terms  of  the  policy  and  the  note  itself,  it 
cannot  affect  them,  but  is  itself  void.  We  did  hold,  in  Eggleston's 
Case,  it  is  true,  that  any  agreement,  declafation,  or  course  of  action 
on  the  part  of  an  insurance  company,  which  leads  a  party  insured 
honestly  to  believe  that  by  conforming  thereto  a  forfeiture  of  his 
policy  will  not  be  incurred,  followed  by  due  conformity  on  his  part, 
will  estop  the  company  from  insisting  upon  the  forfeiture.  An  in- 
surance company  may  waive  a  forfeiture  or  may  agree  not  to  enforce 
a  forfeiture ;  but  a  parol  agreement,  made  at  the  time  of  issuing  a 
policy,  contradicting  the  terms  of  the  policy  itself,  like  any  other  parol 
agreement  inconsistent  with  a  written  instrument  made  contemporary 
therewith,  is  void,  and  cannot  be  set  up  to  contradict  the  writing.  So, 
in  this  case,  a  parol  agreement  supposed  to  be  made  at  the  time  of 
giving  and  accepting  the  premium  note  cannot  be  set  up  to  contradict 
the  express^  terms  of  the  note  itself,  and  of  the  policy  under  which  it 
was  taken. 

The  last  replication  sets  up  and  declares  that  it  was  the  usage  and 
custom  of  the  defendants,  practised  by  them  before  and  after  the  mak- 
ing of  said  note,  not  to  demand  punctual  payment  thereof  at  the  day, 
but  to  give  days  of  grace,  to  wit,  for  thirty  days  thereafter;  and  they 
had  repeatedly  so  done  with  Thompson  and  others,  which  led  Thomp- 
son to  rely  on  such  leniency  in  this  case.  This  was  a  mere  matter 
of  voluntary  indulgence  on  the  part  of  the  company,  or,  as  the  plain- 
tiff herself  calls  it,  an  act  of  "leniency."  It  cannot  be  justly  construed 
as  a  permanent  waiver  of  the  clause  of  forfeiture,  or  as  implying  any 
agreement  to  waive  it,  or  to  continue  the  same  indulgence  for  the 
time  to  come.  As  long  as  the  assured  continued  in  good  health,  it  is 
not  surprising,  and  should  not  be  drawn  to  the  company's  prejudice, 
that  they  were  willing  to  accept  the  premium  after  maturity,  and  waive 
the  forfeiture  which  they  might  have  insisted  upon.  This  was  for 
the  mutual  benefit  of  themselves  and  the  assured,  at  the  time ;  and 
in  each  instance  in  which  it  happened  it  had  respect  only  to  that  par- 
ticular instance,  without  involving  any  waiver  of  the  terms  of  the  con- 
tract in  reference  to  their  future  conduct.  The  assured  had  no  right, 
without  some  agreement  to  that  effect,  to  rest  on  such  voluntary  in- 
dulgence shown  on  one  occasion,  or  on  a  number  of  occasions,  as  a 
ground  for  claiming  it  on  all  occasions.     If  it  were  otherwise,  an  in- 


EXCUSES    FOR   NONPAYMENT  171 

surance  company  could  never  waive  a  forfeiture  on  occasion  of  a  par- 
ticular lapse  without  endangering  its  right  to  enforce  it  on  occasion 
of  a  subsequent  lapse.  Such  a  consequence  would  be  injurious  to 
them  and  injurious  to  the  public. 

But  a  fatal  objection  to  the  entire  case  set  up  by  the  plaintiff  is, 
that  payment  of  the  premium  note  in  question  has  never  been  made 
or  tendered  at  any  time.  There  might  possibly  be  more  plausibility 
in  the  plea  of  former  indulgence  and  days  of  grace  allowed,  if  pay- 
ment had  been  tendered  within  the  limited  period  of  such  indulgence. 
But  this  has  never  been  done.  The  plaintiff  has,  therefore,  failed  to 
make  a  case  for  obviating  and  superseding  the  forfeituie  of  the  pol- 
icy, even  if  the  circumstances  relied  on  had  been  sufficiently  favorable 
to  lay  the  ground  for  it.  A  valid  excuse  for  not  paying  promptly  on 
the  particular  day  is  a  different  thing  from  an  excuse  for  not  paying 

at  all. 

Courts  do  not  favor  forfeitures,  but  they  cannot  avoid  enforcing 
them  when  the  party  by  whose  default  they  are  incurred  cannot  show 
some  good  and  stable  ground  in  the  conduct  of  the  other  party,  on 
which  to  base  a  reasonable  excuse  for  the  default.  We  think  that  no 
such  ground  has  been  shown  in  the  present  case,  and  that  it  does  not 
come  up  to  the  line  of  any  of  the  previous  cases  referred  to,  in  which 
the  excuse  has  been  allowed.  We  do  not  accept  the  position  that  the 
payment  of  the  annual  premium  is  a  condition  precedent  to  the  con- 
tinuance of  the  policy.  That  is  untrue.  It  is  a  condition  subsequent 
only,  the  non-performance  of  which  may  incur  a  forfeiture  of  the 
policy,  or  may  not,  according  to  the  circumstances.  It  is  always  open 
for  the  insured  to  show  a  waiver  of  the  condition,  or  a  course  of 
conduct  on  the  part  of  the  insurer  which  gave  him  just  and  reasona- 
ble ground  to  infer  that  a  forfeiture  would  not  be  exacted.  But  it 
must  be  a  just  and  reasonable  ground,  one  on  which  the  assured  has 
a  right  to  rely.    Judgment  affirmed. ^^ 

15  Existence  of  war  as  an  excuse  for  nonpayment  of  premiums,  see  New 
York  Life  Ins.  Co.  v.  Statham,  ante,  p.  140, 


172  THE    CONSIDERATION — PREMIUMS  AND    ASSESSMENTS 


VI.  Notice  of  Premiums  Due  ^' 


MUTUAL  LIFE  INS.  CO.  v.  COHEN. 

(Supreme  Court  of  United  States,  1900.     179  U.  S.  262,  21  Sup.  Ct.  106,  45 

L.   Ed.  181.) 

On  writ  of  certiorari  to  the  United  States  Circuit  Court  of  Appeals 
for  the  Ninth  Circuit  to  review  a  decision  affirming  a  judgment  for 
Hfe  insurance. 

On  June  10,  1885,  the  petitioner  delivered  to  Alexander  Cohen,  in 
the  state  of  Montana,  a  life  insurance  policy  for  $3,000,  conditioned 
upon  the  annual  payment  of  a  premium  of  $89.61.  Upon  it  the  in- 
sured paid  premiums  up  to  and  including  June  10,  1892.  No  subse- 
quent premiums  were  paid.  On  September  21,  1897,  he  died.  His 
wife.  Tine  Cohen,  was  the  beneficiary  named  in  the  policy. 

The  application  commenced  in  these  words :  "Application  for  insur- 
ance in  the  Mutual  Life  Insurance  Company  of  New  York,  140  to 
146  Broadway,  corner  of  Liberty  street,  New  York  city,  subject  to 
the  charter  of  such  company  and  the  laws  of  said  state."  It  further 
contained  this  provision :  "That  if  the  insurance  applied  for  be  grant- 
ed by  the  company,  the  policy,  if  accepted,  will  be  accepted  subject 
to  all  the  conditions  and  stipulations  contained  in  the  policy."  Among 
those  conditions  and  stipulations  was  this :  "Notice  that  each  and 
every  such  payment  is  due  at  the  date  named  in  the  policy  is  given 
and  accepted  by  the  delivery  and  acceptance  of  this  policy,  and  any 
further  notice,  required  by  any  statute,  is  thereby  expressly  waived." 

On  November  9,  1898,  this  action  was  commenced  in  the  circuit 
court  of  the  United  States  for  the  district  of  Washington. 

The  single  defense  was  the  nonpayment  of  premiums  after  June  11, 
1892.  There  was  no  suggestion  of  rescission,  abandonment,  knowl- 
edge by  the  beneficiary  of  the  nonpayment  of  the  premium,  or  any 
refusal  or  failure  on  her  part  in  respect  to  the  policy.  A  demurrer 
to  the  answer  was  sustained,  judgment  rendered  for  the  amount  of 
the  policy,  less  the  unpaid  premiums,  which  judgment  was  affirmed 
by  the  United  States  Circuit  Court  of  Appeals  for  the  Ninth  Circuit 
(38  C.  C.  A.  696,  97  Fed.  985),  and  thereupon  the  case  was  brought 
here  on  certiorari. 

Mr.  Justice  Brewer  delivered  the  opinion  of  the  court. 

Alutual  L.  Ins.  Co.  v.  Phinney,  178  U.  S.  327,  44  L.  Ed.  1088,  20 
Sup.  Ct.  906,  was  an  action  against  the  same  insurance  company,  in 
the  same  district,  on  a  policy  like  the  one  in  controversy  here,  save 
that  in  that  the  insured  was  himself  the  beneficiary.     It  resulted  in  a 

16  For  discussion  of  principles,  see  "Vance  on  Insurance,  §§  79-SO.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  3,  p.  2281. 


NOTICE    OF   PREMIUMS    DUE  173 

judgment  in  the  circuit  court  against  the  company.  Thereupon  the 
company  sought  to  transfer  it  by  writ  of  error  to  the  court  of  ap- 
peals of  that  circuit,  but  that  court  dismissed  the  writ  of  error. 
Thereafter,  on  April  19,  1897,  a  certiorari  was'  issued  by  this  court. 
166  U.  S.  721.  17  Sup.  Ct.  1004.  On  examination  we  held  that  the 
court  of  appeals  erred  in  dismissing  the  writ  of  error,  that  it  had  juris- 
diction, and  that  it  ought  to  have  reversed  the  judgment  of  the  circuit 
court.  The  decision  was  based  on  the  ground  of  error  in  the  ruling 
of  the  circuit  court  in  respect  to  rescission  and  abandonment.  In  the 
opinion  we  referred  to  the  fact  that  there  was  a  primary  question  of 
the  applicability  of  a  statute  of  the  state  of  New  York,  but  deemed 
it  unnecessary  to  decide  it.  That  decision  was  followed  by  the  cases 
of  the  same  company  against  Sears  (178  U.  S.  345,  44  L.  Ed.  1096, 
20  Sup.  Ct.  912;  Id.,  176  U.  S.  683,  20  Sup.  Ct.  1032),  against  Hill 
(178  U.  S.  347,  44  L.  Ed.  1097,  20  Sup.  Ct.  914;  Id..  176  U.  S.  683, 
20  Sup.  Ct.  1032),  against  Allen  (178  U.  S.  351,  20  Sup.  Ct.  913,  44 
h.  Ed.  1098;  Id.,  176  U.  S.  683,  20  Sup.  Ct.  1032)— all  of  which 
cases  were  disposed  of  in  like  manner. 

The  primary  question  noticed,  but  not  decided,  in  those  cases  is  dis- 
tinctly and  solely  presented  in  this. 

The  insurance  policy  contained  a  stipulation  that  it  should  not  be 
binding  until  the  first  premium  had  been  paid  and  the  policy  deliv- 
ered. The  premium  was  paid  and  the  policy  delivered  in  the  state 
of  Montana.  Under  those  circumstances,  under  the  general  rule,  the 
contract  was  a  Montana  contract,  and  governed  by  the  laws  of  that 
state.  Equitable  Life  Assur.  Soc.  v.  Clements,  140  U.  S.  226,  232,  sub 
nom.  Equitable  Life  Assurance  Soc.  v.  Pettus,  35  L.  Ed.  497,  500,  11 
Sup.  Ct.  822.  In  that  state,  there  being  no  statutory  provisions  to  the 
contrary,  the  failure  to  pay  the  annual  premium  worked,  in  accord 
with  the  terms  of  the  policy,  a  forfeiture  of  all  claims  against  the  com- 
pany. 

New  York,  on  the  other  hand,  the  state  by  which  the  insurance 
company  was  chartered  and  in  which  it  had  its  principal  office,  by 
section  1  of  chapter  321  of  1877  had  enacted — 

"Sec.  1.  No  life  insurance  company  doing  business  in  the  state  of 
New  York  shall  have  power  to  declare  forfeited  or  lapsed  any  policy 
hereafter  issued  or  renewed  by  reason  of  nonpayment  of  any  annual 
premium  or  interest,  or  any  portion  thereof,  except  as  hereinafter  pro- 
vided." 

The  provision  referred  to,  and  which  is  stated  at  length  in  the  suc- 
ceeding part  of  the  section,  is  one  for  notice  of  a  special  kind  and  to 
be  given  in  a  particular  way.  The  section  is  quoted  in  full  in  178 
U.  S.  330,  44  L.  Ed.  1089.  20  Sup.  Ct.  906. 

This  notice  was  not  given.  Hence,  if  the  law  of  New^  York  con- 
trols, the  policy  was  still  in  force  and  the  plaintiff  was  entitled  to  re- 
prover. 


174  THE    CONSIDERATION PREMIUMS   AND    ASSESSMENTS 

The  question  therefore  is  whether  the  law  of  New  York  controls. 

The  presumption  is  in  favor  of  the  law  of  the  place  of  contract. 
He  who  asserts  the  contrary  has  the  burden  of  proof.  The  Xew  York 
statute  does  not  purport  to  change  any  insurance  company  charter. 
On  the  contrary,  its  obvious  purpose  is  only  to  reach  business  trans- 
acted within  the  state.  Proceeding  on  the  accepted  principle  that  a 
state  may  determine  the  conditions,  the  meaning,  and  limitations  of 
contracts  executed  within  its  borders,  the  language  of  the  statute 
reaches  contracts  made  within  the  state.  Undoubtedly  a  foreign  in- 
surance company  making  a  contract  within  the  state  of  New  York 
would  find  that  contract  burdened  b}^  its  provisions,  and  equally  clear 
is  it  that  such  company  making  a  contract  in  another  state  would  be 
free  from  its  limitations.  There  is  no  indication  of  an  intent  on  the 
part  of  the  legislature  of  New  York  to  afifect,  even  if  it  were  possi- 
ble, the  general  powers  of  a  foreign  company  coming  within  the  state 
and  transacting  business.  But  on  the  face  of  the  statute  there  is  no 
express  demarcation  between  foreign  and  local  companies.  There  is 
no  attempt  to  say  that  a  foreign  company  doing  business  within  the 
state  shall,  as  to  such  business,  be  subject  to  the  prescribed  limita- 
tions, and  that  a  home  company  doing  business  within  the  state  and 
elsewhere  shall  as  to  all  its  business  be  so  limited.  If  we  cannot  from 
the  language  impute  to  the  legislature  an  intent  to  regulate  the  busi- 
ness of  a  foreign  company  outside  of  the  state,  how  can  we  find  in 
such  language  an  intent  to  prescribe  limitations  upon  the  contracts  of 
a  home  company  outside  the  state?  In  the  absence  of  an  expressed 
intent  it  ought  not  to  be  presumed  that  New  York  intended  by  this 
legislation  to  afifect  the  right  of  other  states  to  control  insurance  con- 
tracts made  within  their  limits.  Can  it  be  that  the  state  of  New  York, 
aware  of  the  fact  that  other  states  and  other  countries  might  by  their 
legislation  properly  prescribe  terms  and  conditions  of  insurance  con- 
tracts, meant  by  this  legislation  to  restrict  its  local  companies  from 
going  into  those  states  and  countries  and  transacting  business  in  com- 
pliance with  their  statutes  if  in  any  respect  they  were  found  to  con- 
flict with  the  regulations  prescribed  for  business  transacted  at  home? 

Again,  it  is  worthy  of  notice  that  the  state  of  New  York  has 
changed  its  legislation  repeatedly  in  the  last  quarfer  of  a  century  in 
respect  to  this  very  matter  of  notice.  See  Laws  1876,  c.  341,  §  1 ; 
the  statute  now  under  consideration,  Laws  1877;  Laws  1892,  c.  690, 
§  92;  Laws  1897,  c.  218,  §  92.  The  varying  provisions  of  these  stat- 
utes, directed  in  terms,  not  to  local  companies,  but  to  companies  doing 
business  in  the  state  of  New  York,  strengthen  the  conclusion  that  the 
state  was  not  thus  changing  the  several  charters  of  its  companies,  but 
prescribing  only  that  which  in  its  judgment  from  time  to  time  was  the 
proper  rule  for  business  transacted  within  the  state. 

Again,  the  terms  of  the  act  itself  tend  in  the  same  direction.  It 
provides  for  a  thirty-day  notice.  While  such  a  notice  might  be  rea- 
sonable as  to  all  policies  within  the  state,  yet  when  it  is  remembered 


NOTICE    OF   PREMIUMS    DUE  175 

that  some  at  least  of  the  New  York  insurance  companies  are  doing 
business  in  all  quarters  of  the  globe,  it  is  obvious  that  a  thirty-day 
notice  in  many  cases  would  be  of  little  value. 

Further,  by  section  2  the  statute  provides  that  an  affidavit  by  one 
authorized  to  mail  the  notice  shall  be  "presumptive  evidence"  of  the 
giving  of  the  notice.  Can  it  be  supposed  that  the  legislature  of  New 
York  was  contemplating  a  rule  of  evidence  to  be  enforced  in  every 
state  and  nation  of  the  world? 

These  considerations  lead  to  the  conclusion  that  the  statute  of  New 
York,  directed  as  it  is  to  companies  doing  business  within  the  state, 
was  intended  to  be,  and  is,  in  fact,  applicable  only  to  business  trans- 
acted within  that  state. 

It  is  not  doubted  that  a  contract  by  an  insurance  company  of  New 
York  executed  elsewhere  may  by  its  terms  incorporate  the  law  of  New 
York,  and  make  its  provisions  controlling  upon  both  the  insured  and 
the  insurer.  And  it  is  urged  that,  although  there  is  nothing  in  the 
policy  to  indicate  this,  the  language  of  the  application  has  that  effect. 
It  recites  that  it  is  "subject  to  the  charter  of  such  company  and  the 
laws  of  said  state;"  and  the  contract  refers  to  the  application,  and 
declares  that  it  is  issued  "in  consideration  of  the  application  for  this 
policy  and  of  the  truth  of  the  several  statements  made  therein." 
While  the  contract  is  based  upon  the  application,  yet  the  latter  is  only 
a  preliminary  instrument,  a  proposal  on  the  part  of  the  insured,  and 
a  stipulation  that  it  shall  be  controlled  by  the  charter  and  the  laws 
of  the  state  is  not  tantamount  to  a  stipulation  that  the  policy  issued 
thereon  shall  also  in  like  manner  be  controlled.  That  such  language 
was  incorporated  into  the  application  is  not  strange.  Its  meaning  is 
clear,  and  is  that  no  local  statute  as  to  the  effect  of  statements  or 
•representations  or  any  other  matter  in  the  application  should  in  these 
respects  override  the  provisions  of  the  charter  and  the  laws  of  New 
York.  In  other  words,  if  by  the  charter  or  the  laws  of  New  York 
any  statement  in  an  application  is  to  be  taken  as  a  warranty,  no  local 
statute  declaring  that  all  statements  in  an  application  are  to  be  taken 
as  simply  representations  shall  override  the  terms  of  the  charter  and 
the  New  York  law.  But  that  is  very  different  from  a  provision  that 
the  contract  issued  upon  such  application  should  also  be  in  all  its  re- 
spects controlled  by  the  laws  of  New  York. 

Further,  it  may  be  noticed  that  even  if  the  language  justifies  a 
broader  construction  it  may  well  mean  that  only  such  laws  of  the 
state  of  New  York  as  are  intended  to  and  do  change  the  charters  of 
the  companies,  or  are  intended  to  have  extraterritorial  application, 
should  be  considered  a  part  of  the  policy. 

The  stipulation  in  this  policy  is  different  from  that  presented  to  the 
court  of  appeals  of  New  York  in  Baxter  v.  Brooklyn  L.  Ins.  Co.,  119 
N.  Y.  450,  454,  23  N.  E.  1048,  1049  (7  L.  R.  A.  293),  which  was  that 
it  was  "a  contract  made  and  to  be  executed  in  the  state  of  New  York, 
and  construed  only  according  to  the  laws  of  that  state."     There  was 


176  THE    CONSIDERATION PREMIUMS   AND    ASSESSMENTS 

a  direct  provision  in  respect  to  the  contract  itself,   and  thus  incor- 
porated those  laws  into  its  terms. 

While  authorities  on  this  particular  question  are  not  numerous,  we 
may  properly  refer  to  an  opinion  of  the  supreme  court  of  Washing- 
ton, the  state  in  which  this  action  was  brought  (Griesemer  v.  Mutual 
L.  Ins.  Co.,  10  Wash.  202,  211,  38  Pac.  1031,  1034)  in  which,  refer- 
ring to  this  special  question,  and  the  contention  that  this  very  statute 
of  the  state  of  New  York  became  a  part  of  the  contract  of  the  com- 
pany in  the  state  of  Washington,  the  court  said,  on  10  Wash.  206, 
207,  38  Pac.  1031: 

"It  is  claimed  on  the  part  of  the  plaintiff  that  upon  its  enactment 
it  became  attached  to  the  defendant,  it  being  a  corporation  organized 
under  the  laws  of  New  York,  and  effected  a  change  in  its  charter; 
so  that  every  policy  thereafter  issued  by  it,  whether  in  the  state  of 
New  York  or  elsewhere,  became  subject  to  its  provisions.  On  the 
other  hand,  it  is  claimed  by  the  defendant  that  it  only  affected  policies 
issued  to,  or  held  by,  residents  of  the  state  of  New  York;  that  the 
evident  object  of  its  enactment  was  to  protect  such  residents;  that  to 
give  it  a  broader  effect  would  be  to  convict  the  legislature  of  having 
discriminated  against  life  insurance  companies  organized  under  the 
laws  of  the  state. 

"We  are  unable  to  construe  the  law  in  accordance  with  the  conten- 
tion of  either  party.  The  construction  contended  for  by  the  defend- 
ant is  too  narrow.  The  language  used  is,  that  'no  life  insurance  com- 
pany doing  business  in  the  state  of  New  York  shall  have  power  to 
declare  forfeited  or  lapsed  any  policy.  *  *  *  '  This  language,  con- 
strued in  its  ordinary  sense,  seems  to  preclude  such  a  narrow  con- 
struction. Beside,  if  it  were  warranted  by  the  language,  it  would  not 
be  reasonable  to  suppose  that  the  legislature  intended  to  so  limit  the 
effect  of  the  statute.  If  it  had  so  intended,  it  vvou!d  have  made  use 
of  language  which  in  some  manner  confined  the  rights  to  be  affected 
by  the  statute  to  residents  of  the  state,  instead  of  to  companies  doing 
business  therein.  While  the  construction  contended  for  by  the  plain- 
tiff seems  to  be  equally  untenable,  for  the  reason  that  it  would  convict 
the  legislature  of  having  sought  to  accomplish  something  not  in  its 
power.  So  construed  the  act  would  apply  to  all  policies  of  any  com- 
pany which  should  do  business  in  the  state  of  New  York,  wherever 
issued,  regardless  of  the  question  as  to  whether  or  not  it  was  organ- 
ized under  its  laws.  That  the  legislature  of  New  York  could  not  con- 
trol companies  not  organized  under  its  laws  as  to  their  business  trans- 
acted in  other  states  is  too  clear  for  argument.  Hence  the  construc- 
tion contended  for  by  respondent  would  convict  the  legislature  of 
having  attempted  that  which  it  could  not  do,  or  of  having  deliberately 
discriminated  against  its  own  companies. 

"In  our  opinion  the  reasonable  and  ordinary  construction  of  the 
language  used  in  the  statute  is  such  as  to  make  it  applicable  to  busi- 
ness done  in  the  state  of  New  York;    and  that  the  question  as  to 


NOTICE    OF   PREMIUMS   DUE  177 

whether  or  not  the  companies  doing  such  business  were  organized  un- 
der its  laws,  or  those  of  some  other  state,  has  no  influence  upon  the 
question  as  to  whether  or  not  the  statute  is  applicable.  This  con- 
struction is  justified  by  the  language  used,  and  will  give  force  to  every 
word,  while  the  other  will  not  do  so.  And  since  the  well-settled  rule 
as  to  construction  of  statutes  requires  every  word  to  be  given  force 
if  possible,  it  follows  that  the  limitations  of  the  act  are  impressed  upon 
all  policies  issued  in  the  state  of  New  York  by  either  domestic  or 
foreign  companies,  and  that  it  has  no  application  to  policies  not  issued 
therein,  even  although  the  companies  issuing  them  were  organized  un- 
der its  laws." 

The  New  York  cases  cited  by  counsel  throw  no  light  on  the  ques- 
tion. Baxter  v.  Brooklyn  L.  Ins.  Co.,  119  N.  Y.  450,  23  N.  E.  1048, 
7  L.  R.  A.  293,  contained  in  the  contract,  as  heretofore  stated,  an  ex- 
press stipulation  of  the  controlling  law.  In  Carter  v.  Brooklyn  L.  Ins. 
Co.,  110  N.  Y.  15,  17  N.  E.  396,  the  question  was  as  to  the  significance 
of  the  word  "renewed"  in  the  section  referred  to,  and  it  does  not  ap- 
pear where  the  policy  was  issued.  In  Phelan  v.  Northwestern  Mut. 
L.  Ins.  Co.,  113  N.  Y.  147,  20  N.  E.  827,  10  Am.  St.  Rep.  441,  the 
statute  was  held  applicable  to  a  foreign  insurance  company  doing  busi- 
ness in  the  state  of  New  York,  the  notice  given  was  held  insufficient, 
and  no  question  was  considered  as  to  the  scope  of  the  statute  other- 
wise. De  Frece  v.  National  L.  Ins.  Co.,  136  N.  Y.  144,  32  N.  E.  556, 
was  likewise  an  action  against  a  foreign  insurance  company,  and  in- 
volved no  question  like  that  before  us.  Rae  v.  National  L.  Ins.  Co.,  9 
C.  C.  A.  215,  20  U.  S.  App.  410,  60  Fed.  690,  was  also  an  action 
against  a  foreign  insurance  company,  and  the  question  was  simply 
as  to  the  sufficiency  of  the  notice. 

We  conclude,  therefore,  that  the  statute  of  the  state  of  New  York 
does  not,  under  the  circumstances  presented,  control,  and  that  the 
rights  of  the  parties  are  measured  alone  by  the  terms  of  the  contract. 
The  insured  having  failed  to  pay  the  premium  for  years  before  his 
death,  the  policy  was  forfeited.  The  judgment  of  the  Circuit  Court 
of  Appeals  will  be  reversed,  and  the  case  remanded  to  the  Circuit  Court 
of  the  United  States  for  the  District  of  Washington,  with  instructions 
to  set  aside  the  judgment  and  overrule  the  demurrer. 
CooLET  Ins.— 12 


178  THE    CONSIDERATION — PREMIUMS  AND   ASSESSMENTS 


VII.  Paid-up  Policies  and  Extended  Insurance 


17 


KNAPP  V.  HOMCEOPATHIC  MUT.  LIFE  INS.  CO. 

(Supreme  Court  of  United  States,  1886.     117  U.   S.   411,  6  Sup.  Ct.  807,  29 

L.  Ed.  960.) 

In  Error  to  the  Circuit  Court  of  the  United  States  for  the  District 
of  Massachusetts. 

This  was  an  action  brought  March  19,  1878,  by  a  citizen  of  Mas- 
sachusetts against  a  corporation  established  by  the  laws  of  New  York, 
upon  a  policy  of  insurance,  by  which  the  company,  "in  consideration 
of  the  representations  made  to  them  in  the  application  for  this  policy, 
which  is  hereby  made  a  part  of  this  contract,  and  of  the  sum  of  $47.- 
40  to  them  in  hand  paid  by  Abby  Knapp,  wife  of  Charles  L.  Knapp, 
and  of  the  quarterly  payment  of  a  like  amount  on  or  before  the  six- 
teenth days  of  July,  October,  January,  and  April,  in  every  year,  dur- 
ing the  continuance  of  this  policy,"  insured  the  life  of  the  husband, 
for  the  sole  use  of  the  wife,  in  the  amount  of  $5,000  for  the  term  of 
his  natural  life,  beginning  on  April  16,  1869,  payable  at  the  office  of 
the  company  in  New  York  to  her,  if  living,  in  30  days  after  notice 
and  proof  of  his  death.  The  application  declared  that  "neglect  to  pay 
the  premium  on  or  before  the  day  it  becomes  due  shall  and  will  render 
the  policy  null  and  void,  and  forfeit  all  payments  made  thereon,  un- 
less otherwise  specially  provided  for  in  the  policy." 

The  policy  contained  the  following  clause :  "This  policy  of  in- 
surance, after  two  annual  premiums  shall  have  been  paid  thereon,  shall 
not  be  forfeited  or  become  void  by  reason  of  the  non-payment  of  pre- 
mium ;  but  the  party  insured  shall  be  entitled  to  have  it  continued  in 
force  for  a  period  to  be  determined  as  follows,  to-wit :  The  net  value 
of  the  policy  when  the  premium  becomes  due  and  is  not  paid  shall  be 
ascertained  according  to  the  'combined  experience'  or  actuaries'  rate 
of  mortality",  with  interest  at  four  per  cent,  per  annum.  Four-fifths 
of  such  net  value  shall  be  considered  as  a  net  single  premium  of  tem- 
porary insurance,  and  the  term  for  which  it  will  insure  shall  be  deter- 
mined according  to  the  age  of  the  party  at  the  time  of  the  lapse  of 
premium  and  the  assumptions  of  mortality  and  interest  aforesaid ; 
or  at  his  option  may  receive  a  paid-up  policy  for  the  full  amount  of 
premium  paid:  provided,  that  unless  this  policy  shall  be  surrendered 
and  such  paid-up  policy  shall  be  applied  for  within  ninety  days  after 
such  non-payment  as  aforesaid,  then  this  policy  shall  be  void  and  of  no 
effect." 

17  For  discussion  of  principles,  see  Vance  on  Insurance,  §  81.  See,  also, 
Cooley,  Briefs  on  tbe  Law  of  Insurance,  vol.  3,  pp.  2407-24L'2. 


PAID-UP   POLICIES   AND    EXTENDED    INSURANCE  179 

A  trial  by  jury  having  been  duly  waived,  the  circuit  court  found  the 
following  facts :  The  policy  was  issued  April  14,  1869,  in  the  city 
of  New  York,  where  the  husband  and  wife  then  lived.  It  was  taken 
out  by  the  husband,  who  signed  the  application  in  the  wife's  name  as 
her  attorney.  It  was  in  the  possession  of  the  wife  in  1871,  and  of  the 
husband  before  and  afterwards.  The  premiums  were  paid  for  several 
years,  mostly  by  the  husband,  but  one  or  two  by  the  wife.  She  lived 
apart  from  her  husband  nearly  all  the  time  after  February,  1872.  On 
January  16,  1874,  a  premium  became  due  and  was  not  paid.  On  Feb- 
ruary 26,  1874,  the  husband  represented  to  the  company  that  his  wife 
was  dead.  The  company  believed  the  representation  to  be  true,  and 
he  surrendered  the  policy,  taking  from  the  company  $260  in  money, 
and  a  new  policy,  concerning  which  the  only  evidence  was  that  it  had 
been  forfeited  before  his  death,  which  happened  September  17,  1874. 
Very  soon  after  his  death,  the  wife  sent  to  the  company  for  informa- 
tion about  the  policy,  and  her  agent  was  told  by  the  company  that  it 
was  forfeited.  A  considerable  time  after  this,  being  advised  that  she 
might  have  some  rights  under  the  policy,  she  gave  due  notice  and  proof 
of  loss,  and  more  than  30  days  afterwards  brought  this  action  to  re- 
cover the  full  amount  insured.  The  net  value  of  the  policy  when  the 
non-payment  of  the  premium  occurred,  if  reckoned  in  the  mode  point- 
ed out  in  the  policy,  would  have  been  sufficient  to  continue  it  in  force 
until  after  the  death  of  the  husband.  On  these  facts,  the  circuit  court 
ruled,  as  matter  of  law,  that  the  policy  was  forfeited  by  the  neglect  to 
pay  the  premiums  and  to  call  for  a  paid-up  policy,  and  rendered  judg- 
ment for  the  defendant,  and  allowed  a  bill  of  exceptions  tendered  by 
the  plaintiff. 

Mr.  Justice  Gray,  after  stating  the  case  as  above  reported,  delivered 
the  opinion  of  the  court. 

The  canceling  of  the  policy,  in  consequence  of  the  husband's  fraudl- 
ulent  representation  that  the  wife  was  dead,  had  no  effect  upon  her 
rights.  It  is  not  relied  on  by  the  defendant,  and  there  is  nothing  in 
the  case  to  show  that  it  in  any  way  influenced  the  conduct  of  the 
plaintiff  by  preventing  her  from  paying  the  premiums  or  making  the 
election  required  by  the  policy.  The  contract  of  insurance,  made  and 
to  be  performed  in  New  York,  between  a  corporation  and  a  citizen 
of  that  state,  is  to  be  governed  by  the  law  of  New  York.  By  that  law, 
in  respect  to  the  payment  of  or  the  neglect  to  pay  premiums,  a  mar- 
ried woman  stands  like  any  other  person  insured  ( Baker  v.  Union  Ins. 
Co.,  43  N.  Y,  283)  ;  and  there  is  no  statute  which  affects  this  case. 
The  decision,  therefore,  depends  upon  the  true  construction  of  the 
non-forfeiture  clause  in  the  policy. 

The  single  purpose  of  this  clause  is  that,  after  two  annual  premiums 
shall  have  been  paid,  a  failure  to  pay  any  subsequent  premium  shall 
not  have  the  effect  of  avoiding  the  whole  insurance,  but  the  assured 
shall  have  the  right  to  an  insurance  for  such  a  sum  and  such  a  time 
as  the  premiums  already  paid  would  equitably  cover.    The  policy  does 


180  THE    CONSIDERATION — PREMIUMS  AND    ASSESSMENTS 

not  declare  that  it  shall  continue  of  itself  without  any  act  of  the  assured. 
On  the  contrary,  it  stipulates  that  "the  party  insured  shall  be  entitled 
to  have  it  continued  in  force  for  a  period!  to  be  determined"  by  as- 
certaining, according  to  certain  rules,  the  net  value  of  the  policy  at 
the  time  of  failure  to  pay  a  premium,  and  making  the  amount  of  that 
value,  considered  as  a  single  premium,  the  basis  for  determining  the 
time  for  which  there  shall  be  a  temporary  insurance  for  the  full 
amount  of  the  original  policy.  It  then  prescribes  an  alternative  by 
which  the  party  insured,  "at  his  option,  may  receive  a  paid-up  policy 
for  the  full  amount  of  premium  paid."  In  short,  the  forfeiture  of 
the  policy,  by  a  failure  to  pay  any  premium  after  the  first  two,  is  not 
absolute,  but  qualified ;  and  the  party  insured  is  entitled  to  be  insured 
according  to  the  sum  already  paid  in  premiums,  either  for  the  full 
amount  of  the  original  policy,  so  long  as  that  sum  would  pay  for  it, 
or  else  for  the  full  term  of  the  original  policy  for  such  amount  as 
that  sum  would  pay  for.  Then  follows  the  proviso  "that  unless  this 
policy  shall  be  surrendered  and  such  paid-up  policy  shall  be  applied 
for  within  ninety  days  after  such  non-payment,  as  aforesaid,  chen  this 
policy  shall  be  void  and  of  no  effect." 

It  is  contended  on  behalf  of  the  plaintiff  that  the  words  "such  paid- 
up  policy"  show  that  this  provision  refers  only  to  a  new  insurance  de- 
termined by  the  second  method, — that  is,  for  the  full  term  of  the  or- 
iginal policy,  and  for  an  amount  depending  upon  the  sum  already  paid  in 
premiums  ;  and  that  if  the  assured  does  not  seasonably  apply  for  such  an 
insurance,  she  still  remains  insured  for  the  full  amount  for  a  time  com- 
puted according  to  the  sum  paid.  But  the  proviso  does  not  say  that 
upon  a  failure  to  surrender  the  original  policy,  and  to  apply  for  a 
paid-up  policy,  the  original  policy  shall  stand  good  for  a  temporary 
insurance;  but  that  it  "shall  be  void  and  of  no  effect."  The  result 
of  either  of  the  two  methods  already  prescribed  for  determining  the 
extent  of  the  insurance  is  a  paid-up  policy.  According  to  either  meth- 
od there  is  to  be  no  further  payment  of  premium,  nor  is  the  original 
policy  continued  in  force;  but  the  assured  is  to  have  the  benefit  of 
the  sum  already  paid  in  premiums,  by  being  insured,  either  for  the 
amount  of  the  original  policy  for  a  time  to  be  determined,  or  for  the 
time  of  the  original  policy  for  an  amount  to  be  determined.  Taking 
the  whole  clause  together,  it  is  clear  that  the  assured  is  to  have  the 
benefit  of  that  sum  in  one  of  two  ways,  at  her  election,  and  that  elec- 
tion must  be  made  within  a  certain  time.  As  that  time  expired  with- 
out any  election,  or  any  excuse  for  not  making  one,  the  forfeiture  be- 
came complete  under  the  express  provisions  of  the  policy,  and  the 
circuit  court  rightly  held  that  the  action  could  not  be  maintained. 
Judgment  affirmed. 


DUES   AND   ASSESSMENTS   IN    MUTUAL   BENEFIT   SOCIETIES         181 


VIII.  Dues  and  Assessments  in  Mutual  Benefit  Societies 


18 


SUPREME  LODGE   KNIGHTS   OF   PYTHIAS   v.   W-lITHERS. 

(Supreme  Court  of  United  States,  1900.     177  U.  S.  260,  20  Sup.  Ct.  611, 

44  L.  Ed.   762.) 

In  error  to  the  Circuit  Court  of  Appeals  for  the  Fifth  Circuit  to 
review  a  decision  afifirming  a  judgment  in  favor  of  the  plaintiff  in  an 
action  on  a  certificate  or  policy  of  insurance. 

This  was  an  action  originally  begun  in  the  circuit  court  of  Hale 
county,  Alabama,  by  Josephine  R.  Withers,  to  recover  of  the  de- 
fendant the  amount  of  a  certain  certificate  or  policy  of  insurance  upon 
the  life  of  her  husband. 

The  case  was  removed  to  the  circuit  court  of  the  United  States  for 
the  middle  district  of  Alabama,  upon  the  petition  of  the  defendant 
and  upon  the  ground  that  the  Supreme  Lodge  Knights  of  Pythias  was 
a  corporation  organized  by  act  of  Congress,  and  hence  that  the  con- 
troversy arose  under  the  Constitution  and  laws  of  the  United  States. 

The  case  was  submitted  to  a  jury  upon  an  agreed  statement  of  facts, 
and  the  court  instructed  a  verdict  for  the  plaintiff  in  the  sum  of  $3,- 
000,  the  amount  of  the  policy,  with  interest,  upon  which  verdict  a  judg- 
ment was  entered  for  $3,392.54.  The  case  was  taken  by  writ  of 
error  to  the  circuit  court  of  appeals,  which  affirmed  the  judgment. 
59  U.  S.  App.  177,  89  Fed.  160,  32  C.  C.  A.  182.  Whereupon  the  de- 
fendant sued  out  a  writ  of  error  from  this  court. 

The  facts,  so  far  as  they  are  material,  are  stated  in  the  opinion  of 
the  court. 

Mr.  Justice  Brown  delivered  the  opinion  of  the  court. ^® 

The  Supreme  Lodge  Knights  of  Pythias  is  a  fraternal  and  benevolent 
society,  incorporated  by  an  act  of  Congress  of  June  29,  1894  (28  Stat. 
96,  c.  119),  as  the  successor  of  a  former  corporation  of  the  same  name, 
organized  under  an  act  approved  May  5,  1870.  The  beneficial  or 
insurance  branch  of  the  order  is  known  as  the  endowment  rank,  which 
is  composed  of  those  numbers  of  the  order  who  have  taken  out  bene- 
fit certificates.  Such  members  are  admitted  into  local  subordinate 
branches  known  as  sections.  The  members  of  each  section  elect  their 
own  president  and  secretary.  The  endowment  rank  is  governed  by  a 
board  of  control  whose  officers  are  a  president  and  secretary,  and 
whose  place  of  business  is  in  Chicago.  The  endowment  rank  is  gov- 
erned by  a  constitution   and  general   laws   enacted  by  the   Supreme 

18  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  83-84.     See,  also, 
Cooley,  Briefs  on  tlie  Law  of  Insurance,  vol.  3,  p.  2373. 
10  Part  of  the  opinion  is  omitted. 


182  THE    CONSIDERATION PREMIUMS   AND    ASSESSMENTS 

Lodge,  and  by  rules  and  regulations  adopted  by  the  board  of  control 
and  approved  by  the  Supreme  Lodge. 

On  January  1,  1883,  Robert  W.  Withers  made  application  for  mem- 
bership in  the  endowment  rank,  and  in  that  application  made  the  fol- 
lowing statement :  "I  hereby  agree  that  I  will  punctually  pay  all  dues 
and  assessments  to  which  I  may  become  liable,  and  that  I  will  be  gov- 
erned, and  this  contract  shall  be  controlled,  by  all  the  laws,  rules,  and 
regulations  of  the  order  governing  this  rank,  now  in  force,  or  that 
may  hereafter  be  enacted,  or  submit  to  the  penalties  therein  contained." 
His  application  was  accepted,  and,  after  receiving  a  certificate  under 
the  first  act  of  incorporation  which  he  voluntarily  surrendered,  he 
received  the  certificate  upon  which  this  action  is  brought.  This  cer- 
tificate recited  the  original  application  for  membership  dated  January 
I,  1883,  the  surrender  of  the  former  certificate  and  the  application  for 
transfer  to  the  fourth  class,  which  were  "made  a  part  of  this  contract, 
*  *  *  and  in  consideration  of  the  payment  heretofore  to  the  said 
endowment  rank  of  all  monthly  payments,  as  required  and  the  full  com- 
pliance with  all  the  laws  governing  this  right,  now  in  force  or  that 
may  hereafter  be  enacted,  and  shall  be  in  good  standing  under  said 
laws,  the  sum  of  $3,000  will  be  paid  by  the  Supreme  Lodge,  etc.,  to 
Josephine  R.  Withers,  wife,  *  *  *  upon  due  notice  and  proof  of 
death  and  good  standing  in  the  rank  at  the  time  of  his  death,  *  *  * 
and  it  is  understood  and  agreed  that  any  violation  of  the  within-men- 
tioned conditions  or  other  requirements  of  the  laws  in  force  govern- 
ing this  right  shall  render  this  certificate  and  all  claims  null  and  void, 
and  the  said  Supreme  Lodge  shall  not  be  liable  for  the  above  sum  or 
any  part  thereof." 

Withers  was  a  member  of  section  432,  at  Greensboro,  Alabama,  of 
which  one  Chadwick  was  secretary.  By  the  laws  of  the  endowment 
rank  Withers  was  required  to  pay  $4.90  monthly  in  accordance  with 
his  age  and  the  amount  of  his  endowment. 

In  January,  1894,  defendant  adopted  and  promulgated  the  following 
general  laws : 

''Sec.  4.  Monthly  payments  and  dues  of  members  holding,  certifi- 
cates of  endowment  shall  be  due  and  payable  to  the  secretary  of  sec- 
tion without  notice,  on  the  first  day  of  each  and  every  month  ;  and 
a  failure  to  make  such  payment  on  or  before  the  10th  day  of  each 
month  shall  cause,  from  and  after  such  date,  a  forfeiture  of  the  cer- 
tificate of  endowment  and  all  right,  title,  and  interest  such  member 
or  his  beneficiaries  may  have  in  and  to  the  same,  and  membership 
shall  cease  absolutely.  In  case  of  such  forfeiture,  membership  may 
be  regained  by  making  application  in  the  form  prescribed  for  new 
applicants,  the  payment  of  required  membership  fee  and  surrender 
of  the  forfeited  certificate.  If  approved  by  the  medical  examiner-in- 
chief  and  accepted  by  the  board  of  control,  a  new  certificate  shall  be 
issued,  and  the  rating  shall  hereafter  be  at  the  age  of  nearest  birthday 
to  the  date  of  the  last  application." 


DUES   AND   ASSESSMENTS   IN    MUTUAL   BENEFIT   SOCIETIES        183 

"Sec.  6.  The  secretary  of  the  section  shall  forward  to  the  board  of 
control  the  monthly  payments  and  dues  collected  immediately  after 
the  10th  day  of  each  and  every  month. 

"If  such  payment  and  dues  are  not  received  by  the  board  of  control 
on  or  before  the  last  day  of  the  same  month  the  section  so  failing  to 
pay,  and  all  members  thereof,  shall  stand  suspended  from  membership 
in  the  Endowment  Rank ;  and  their  certificates  and  all  right,  title,  and 
interest  therein  shall  be  forfeited.  Notice  of  such  suspension  shall  be 
forthwith  mailed  by  the  secretary  of  the  board  of  control  to  the  presi- 
dent and  secretary  of  such  section. 

"Provided,  that  the  section  whose  membership  has  forfeited  their 
endowment,  and  whose  warrant  has  been  suspended,  shall  regain  all 
right  as  a  section,  and  any  surviving  members  thereof  (not  less  than 
five)  shall  regain  full  rights  and  privileges  held  previous  to  such  for- 
feiture, if  within  thirty  days  from  suspension  of  warrant  said  section 
shall  pay  to  the  board  of  control  the  amount  of  all  monthly  payments, 
assessments,  and  dues  accrued  upon  said  members. 

"Sec.  10.  Sections  of  Endowment  Ranks  shall  be  responsible  and 
liable  to  the  board  of  control  for  all  moneys  collected  by  the  secretary 
or  other  officers  from  the  members  for  monthly  payments,  assessments, 
or  dues  not  paid  over  to  the  board  within  the  time  and  manner  pre- 
scribed by  law.  Officers  of  sections  are  the  agents  of  members,  and 
shall  in  no  wise  be  considered  as  the  agents  of  the  representatives  of 
the  board  of  control  or  of  the  Endowment  Rank  or  of  the  Supreme 
Lodge." 

For  over  twelve  years  Withers  made  his  monthly  payments  as  re- 
quired by  law  to  the  secretary  of  the  section,  and  the  money  was  reg- 
ularly remitted  to  the  board  of  control  at  Chicago.  His  last  payment 
was  made  prior  to  October  10,  1895,  as  required  by  section  4,  for  the 
dues  of  that  month.  As  there  were  a  large  number  of  members  in 
the  section,  and  as  their  dues  were  not  all  collected  until  the  latter 
part  of  the  month,  the  secretary  of  the  section  did  not  send  the  money 
to  the  board  of  control  until  October  31,  when  he  mailed  to  the  secre- 
tary of  that  board  a  check  covering  all  the  amounts  due  by  all  the  mem- 
bers of  the  section  for  that  month.  The  letter  did  not  leave  the  post- 
office  until  the  next  day,  and  was  received  by  the  board  of  control 
November  4.  No  notice  was  ever  mailed  by  the  board  of  control  to 
Withers  notifying  him  of  his  suspension;  but  on  November  1.  as 
required  by  section  6,  the  secretary  of  the  board  of  control  mailed  to 
Mr.  Chadwick,  the  secretary  of  the  section  at  Greensboro,  a  notice  of 
the  suspension  of  all  members  thereof,  with  an  intimation  that  the 
members  of  the  section  might  regain  their  rights  under  certain  condi- 
tions therein  named.  No  notice  was  mailed  to  the  president  of  the 
section.  In  view  of  the  technical  character  of  the  defense,  it  is  worthy 
of  mention  that  the  board  of  control  did  not  strictly  comply  with  its 
own  regulation  in  this  particular. 


184  THE    CONSIDERATION PREMIUMS   AND    ASSESSMENTS 

Upon  receiving  the  remittance,  and  on  November  4,  the  secretary  of 
the  board  .of  control  mailed  the  following  postal  card  to  the  secretary 
of  the  section : 

"Office  Board  of  Control, 

"Chicago,  November  4,  1895. 

"Received  of  Section  No.  432  one  hundred  and  thirteen  30-100  dol- 
lars in  payment  of  monthly  payments  and  dues  for  October,  1895,  on 
condition  that  all  members  for  whom  above  payment  is  made  were 
living  at  date  of  this  receipt.  H.  B.  Stolte, 

"Secretary  Board  of  Control." 

The  insured  was  suddenly  taken  ill  and  died  of  an  attack  of  cholera 
morbus  on  November  1,  1895.  Proofs  of  death  were  waived  by  the 
defendant,  which,  however,  refused  to  pay  the  amount  of  the  x:ertifi- 
cate. 

It  is  hardly  necessary  to  say  that  the  defense  in  this  case  is  an  ex- 
tremely technical  one,  and  does  not  commend  itself  to  the  average  sense 
of  justice.  It  ought  to  be  made  out  with  literal  exactness.  It  is  ad- 
mitted that  Withers  for  twelve  years  paid  all  his  dues  promptly  to  the 
secretary  of  the  section  as  required  by  section  4  of  the  general  laws, 
and  that  the  failure  of  the  board  of  control  to  receive  them  on  or  be- 
fore the  last  day  of  the  month  was  the  fault  of  the  secretary,  and  not 
of  the  insured.  The  whole  defense  rests  upon  the  final  clause  of  sec- 
tion 10,  declaring  that  "officers  of  sections  are  the  agents  of  the  mem- 
bers and  shall  in  no  wise  be  considered  as  the  agents  of  the  represen- 
tatives of  the  board  of  control  of  the  Endowment  Rank  or  of  the  Su- 
preme Lodge."  It  appears  to  have  been  the  habit  of  the  secretary,  Mr. 
Chadwick,  not  to  remit  each  payment  as  it  was  made,  but  to  allow  all 
the  dues  of  each  month  to  collect  in  his  hands  and  to  remit  them  to- 
gether by  a  check  covering  the  whole  amount,  about  the  close  of  the 
month.  In  this  connection  he  makes  the  following  statement:  "It 
had  never  been  the  custom  of  my  office  for  me  to  send  the  money  off 
by  the  twentieth  of  the  month"  (although  section  6  required  him  to 
forward  it  immediately  after  the  tenth).  "I  usually  sent  the  money 
off  about  the  last  days  of  the  month.  For  the  previous  year  I  had 
mailed  to  the  secretary  of  the  board  of  control  the  dues  of  the  section 
as  follows:  October  27,  1894,  November  28,  1894,  December  29,  1894, 
January  29,  1895,  February  27.  1895,  March  30,  1895,  April  29,  1895, 
June  29,  1895,  July  8,  1895,  August  29,  1895,  September  28,  1895,  Octo- 
ber 28,  1895,  October  31,  1895 — all  of  which  sums  were  accepted  by 
the  board  of  control." 

The  position  now  taken  by  the  defendant,  that  in  receiving  the  money 
from  the  insured  members,  and  remitting  the  same  to  the  board  of 
control,  the  secretary  of  the  section  was  the  agent  of  the  insured,  and 
not  of  the  board  of  control,  is  inconsistent  with  the  requirement  of  sec- 
tion 4,  which  makes  it  obligatory  upon  policy  holders  to  pay  their 
monthly  dues  to  the  secretary  of  the  section,  and  to  him  only,  as  well 


DUES   AND   ASSESSMENTS   IN    MUTUAL   BENEFIT   SOCIETIES        185 

as  with  the  provision  of  section  10,  that  "sections  of  Endowment  Rank 
shall  be  responsible  and  liable  to  the  board  of  control  for  all  moneys 
collected  by  the  secretary,  or  other  officers,  from  the  members  for 
monthly  payments,  assessments,  or  dues  not  paid  over  to  the  board 
within  the  time  and  manner  prescribed  by  law."  The  question  at  once 
suggests  itself.  To  whom  does  the  money  belong  when  paid  to  the 
secretary  of  the  section?  If  to  the  insured,  it  was  within  his  power 
to  reclaim  it  at  any  time  before  it  was  remitted  If  to  the  board  of 
control,  it  was  the  duty  of  the  secretary  of  the  section  to  remit  it. 
Why,  too,  should  the  board  of  control  attempt  to  deal  with  it  at  all  be- 
yond requiring  it  to  be  paid  them  by  a  certain  day?  Section  10  is  a 
complete  answer  since  that  makes  the  sections  responsible  to  the  board 
of  control  from  the  moment  the  money  is  collected,  and  section  6 
makes  it  the  duty  of  the  secretary  to  remit  it  at  once. 

There  seems  to  have  been  an  attempt  on  the  part  of  the  defendant  to 
invest  Air.  Chadwick  with  the  power  and  authority  of  an  agent,  and 
at  the  same  time  to  repudiate  his  agency.  But  the  refusal  to  acknowl- 
edge him  as  agent  does  not  make  him  the  less  so,  if  the  principal  as- 
sume to  control  his  conduct.  It  is  as  if  a  creditor  should  instruct  his 
debtor  to  pay  his  claim  to  a  third  person,  and  at  the  same  time  declare 
that  such  third  person  was  not  his  agent  to  receive  the  money.  It 
would  scarcely  be  contended,  however,  that  such  payment  would  not 
be  a  good  discharge  of  the  debt,  though  the  third  person  never  ac- 
counted to  the  creditor ;  much  less,  that  it  would  not  be  a  good  pay- 
ment as  of  a  certain  day,  though  the  remittance,  through  the  fault  of 
the  person  receiving  it,  did  not  reach  the  creditor  until  the  following 
day. 

The  position  of  the  secretary  must  be  determined  by  his  actual  power 
and  authority,  andl  not  by  the  name  which  the  defendant  chooses  to 
give  him.  To  invest  him  with  the  duties  of  an  agent,  and  to  deny  his 
agency,  is  a  mere  juggling  with  words.  Defendant  cannot  thus  play 
fast  and  loose  with  its  own  subordinates.  Upon  its  theory  the  policy 
holders  had  absolutely  no  protection.  They  were  bound  to  make  their 
monthly  payments  to  the  secretary  of  the  section,  who  was  bound  to 
remit  them  to  the  board  of  control ;  but  they  could  not  compel  him  to 
remit,  and  were  thus  completely  at  his  mercy.  If  he  chose  to  play  into 
the  hands  of  the  company,  it  was  possible  for  him,  by  delaying  his  re- 
mittance until  after  the  end  of  the  month,  to  cause  a  suspension  of 
every  certificate  within  his  jurisdiction  ;  and  in  case  such  remittance 
was  not  made  within  thirty  days  from  such  suspension  (section  6)  ap- 
parently to  make  it  necessary  under  section  4  for  each  policy  holder 
to  regain  his  membership  by  making  a  new  application,  surrendering 
his  forfeited  certificate,  making  payment  of  the  required  membership 
fee,  undergoing  a  new  medical  examination,  and  paying  a  premium  de- 
termined by  his  age  at  the  date  of  the  last  application.  In  other  words, 
by  the  failure  of  the  secretary,  over  whom  he  had  no  control,  to  remit 
within  thirty  days,  every  member  of  the  section  might  lose  his  rights 


186  THE    CONSIDERATION — PREMIUMS  AND    ASSESSMENTS 

under  his  certificate  and  stand  in  the  position  of  one  making-  a  new 
appHcation,  with  a  forfeiture  of  all  premiums  previously  paid.  The 
new  certificate  would,  of  course,  be  refused  if  his  health  in  the  mean- 
time had  deteriorated,  and  the  examining  physician  refused  to  approve 
his  application.  This  would  enable  the  company  at  its  will  to  relieve 
itself  of  the  burdens  of  undesirable  risks  by  refusing  certificates  of 
membership  to  all  whose  health  had  become  impaired  since  the  orig- 
inal certificate  was  taken  out,  though  such  certificate-holder  may  have 
been  personally  prompt  in  making  his  monthly  payments. 

It  could  not  thus  clothe  the  secretaries  of  the  sections  with  the  pow- 
ers of  agents  by  authorizing  them  to  receive  monthly  payments  and 
instructing  them  to  account  for  and  remit  them  to  the  Supreme  Lodge 
at  Chicago,  and  in  the  same  breath  deny  that  they  were  agents  at 
all.  The  very  definition  of  an  agent,  given  by  Bouvier,  as  "one  who 
undertakes  to  transact  some  business,  or  manage  some  afifair,  for  an- 
other, by  the  authority  and  on  account  of  the  latter,  and  to  render  an 
account  of  it"  presupposes  that  the  acts  done  by  the  agent  shall  be  done 
in  the  interest  of  the  principal,  and  that  he  shall  receive  his  instruc- 
tions from  him.  In  this  case  the  agent  received  his  instructions  from 
the  Supreme  Lodge,  and  his  actions  were,  at  least,  as  much  for  the 
convenience  of  the  lodge  as  for  that  of  the  insured.  If  the  Supreme 
Lodge  intrusted  Chadwick  with  a  certain  authority,  it  stands  in  no 
position  to  deny  that  he  was  its  agent  within  the  scope  of  that  au- 
thority. 

The  reports  are  by  no  means  barren  of  cases  turning  upon  the  prop- 
er construction  of  this  so-called  "agency  clause,"  under  which  the  de- 
fendant seeks  to  shift  its  responsibility  upon  the  insured  for  the  neg- 
lect of  Chadwick  to  remit  on  the  proper  day.  In  some  jurisdictions 
it  is  held  to  be  practically  void  and  of  no  efifect ;  in  others,  it  is  looked 
upon  as  a  species  of  wild  animal,  lying  in  wait  and  ready  to  spring 
upon  the  unwary  policy  holder,  and  in  all,  it  is  eyed  with  suspicion  and 
construed  with  great  strictness.  We  think  it  should  not  be  given  ef- 
fect when  manifestly  contrary  to  the  facts  of  the  case,  or  opposed  to 
the  interests  of  justice.  Wherever  the  agency  clause  is  inconsistent 
wath  the  other  clauses  of  the  policy,  conferring  power  and  authority 
upon  the  agent,  he  is  treated  as  the  agent  of  the  company  rather  than 
of  the  policy  holder.  The  object  of  the  clause  in  most  cases  is  to 
transfer  the  responsibility  for  his  acts  from  the  party  to  whom  it  prop- 
erly belongs,  to  one  who  generally  has  no  knowledge  of  its  existence. 
It  is  usually  introduced  into  policies  in  connection  with  the  applica- 
tion, and  for  the  purpose  of  making  the  agent  of  the  company  the 
agent  of  the  party  making  the  application,  with  respect  to  the  state- 
ments therein  contained.     *     *     * 

In  Patridge  v.  Commercial  F.  Ins.  Co.,  17  Hun  (N.  Y.)  95,  it  was 
said  of  the  agency  clause:  "This  is  a  provision  which  deserves  the 
condemnation  of  courts,  whenever  it  is  relied  upon  to  work  out  a  fraud, 
as  it  is  in  this  case.    The  policy  might  as  well  say  that  the  president 


DUES   AND   ASSESSMENTS   IN   MUTUAL   BENEFIT   SOCIETIES        187 

of    the   company    should    be    deemed    the   president    of    the    assured. 

*  *  *  Such  a  clause  is  no  part  of  a  contract.  It  is  an  attempt  to 
reverse  the  law  of  agency,  and  to  declare  that  a  party  is  not  lx)und 
by  his  agent's  acts.  Whether  one  is  an  agent  of  another  is  a  question 
of  mixed  law  and  fact,  depending  on  the  authority  given  expressly 
or  impliedly.  And  when  a  contract  is,  in  fact,  made  through  the  agent 
of  a  party,  the  acts  of  that  agent  in  that  respect  are  binding  on  his 
principal."     *     *     * 

Speaking  of  the  agency  clause  in  Continental  Ins.  Co.  v.  Pearce, 
39  Kan.  396,  18  Pac.  291,  7  Am.  St.  Rep.  557,  it  is  said:  "This  is 
but  a  form  of  words  to  attempt  to  create  on  paper  an  agency  which 
in  fact  never  existed.  It  is  an  attempt  of  the  company  not  to  restrict 
the  powers  of  its  own  agent,  but  an  effort  to  do  away  with  that  re- 
lation altogether  by  mere  words,  and  to  make  him  in  the  same  manner 
the  agent  of  the  assured,  when,  in  fact,  such  relation  never  existed. 

*  *  *  We  do  not  believe  the  entire  nature  and  order  of  this  well- 
established  relation  can  be  so  completely  subverted  by  this  ingenious 
device  of  words.  The  real  fact,  as  it  existed,  cannot  be  hidden  in  this 
manner ;  much  less  can  it  be  destroyed  and  something  that  did  not  in 
reality  exist  be  placed  in  its  stead.  The  substance  is  superior  to  the 
mere  drapery  of  words  with  which  one  party  wishes  to  bring  into  ex- 
istence and  clothe  an  unreal  authoritv."  See  also  Kausal  v.  Minnesota 
Farmers'  Mut.  F.  Ins.  Asso.,  31  Minn.  17,  16  N.  W^  430,  47  Am.  Rep. 
776,  in  which  the  act  of  an  insurance  agent  in  making  out  an  incorrect 
application  was  held  chargeable  to  the  insurer,  and  not  to  the  insur- 
ed, notwithstanding  the  insertion  of  an  agency  clause  in  the  policy. 

In  Planters'  Ins.  Co.  v.  ]\Iyers,  55  Miss.  479,  30  Am.  Rep.  521,  an 
agency  clause  in  a  policy  of  insurance  was  held  to  be  void,  as  involv- 
ing a  legal  contradiction.  The  applicant  made  truthful  answers  to 
certain  interrogatories  propounded  by  the  agent,  who  stated  certain 
things  that  were  not  true.  They  were  held  not  to  be  binding  upon  the 
insured.     *     *     * 

The  case  of  Schunck  v.  Gegenseitiger  Wittwen  und  Waisen  Fond, 
44  Wis.  369,  is  almost  precisely  like  the  instant  case.  The  constitu- 
tion of  the  defendant  corporation,  whose  governing  body  or  directory 
was  elected  by  the  several  "groves"  (corresponding  to  the  sections  in 
this  case)  of  the  United  Ancient  Order  of  Druids,  declared  that  every 
member  whose  assessment  was  not  paid  by  his  grove  to  the  directory 
within  thirty  days  after  demand  made  forfeited  his  claim  to  have  a 
certain  sum  in  the  nature  of  life  insurance  paid  to  his  widow,  or  heirs, 
after  his  death.  It  was  held  that,  in  view  of  all  the  provisions  of  such 
constitution,  the  benevolent  object  of  the  corporation,  and  the  fact  that 
the  several  groves  are,  at  least,  as  much  its  agents  to  collect  and  pay 
over  the  dues  of  their  members,  as  they  are  agents  of  the  latter,  in 
case  of  a  member  whose  dues  have  been  fully  paid  to  his  grove  at 
the  time  of  his  death,  the  amount  of  insurance  might  be  recovered,  not- 


188  THE    CONSIDERATION — PREMIUMS  AND    ASSESSMENTS 

withstanding  a  default  of  the  grove  in  paying  over  such  dues  to  the 
defendant. 

The  agency  clause  was  also  once  before  this  court  in  the  case  of 
Grace  v.  American  C.  Ins.  Co.,  109  U.  S.  278,  27  L.  Ed.  932,  3  Sup. 
Ct.  207,  in  which  a  clause  in  the  policy  that  the  person  procuring  the 
insurance  to  be  taken  should  be  deemed  the  agent  of  the  assured  and 
not  of  the  company,  was  held  to  import  nothing  more  than  that  the 
person  obtaining  the  insurance  was  to  be  deemed  the  agent  of  the  in- 
sured in  the  matters  immediately  connected  with  the  procurement  of 
the  policy,  and  that,  where  his  employment  did  not  extend  beyond  the 
procurement  of  the  insurance,  his  agency  ceased  upon  the  execution 
of  the  policy,  and  subsequent  notice  to  him  of  its  termination  by  the 
company  was  not  notice  to  the  insured. 

In  the  following  cases  the  officers  of  the  subordinate  lodge,  or  con- 
clave, were  treated  as  the  agents  of  the  Supreme  Conclave  in  the 
matter  of  granting  extensions  of  time  for  the  payment  of  assessments : 
\Vhiteside  v.  Supreme  Conclave  I.  O.  of  H.  (C.  C.)  82  Fed.  275; 
Knights  of  Pythias  of  the  World  v.  Bridges,  15  Tex.  Civ.  App.  196, 
39  S.  W.  333. 

In  the  case  under  consideration  it  may  be  immaterial,  except  as 
bearing  upon  the  equities  of  the  case,  that  the  agency  clause  was  in- 
troduced into  the  general  laws  of  the  order  in  January,  1894,  eleven 
years  after  the  first  certificate  was  issued  to  the  assured,  and  nearly 
nine  years  after  the  certificate  was  issued  upon  which  suit  was  brought. 
There  is  no  evidence  that  it  was  ever  called  to  Withers'  attention,  or 
that  he  had  actual  knowledge  of  it.  If  he  were  bound  at  all,  it  could 
only  be  by  the  stipulation  in  his  original  application,  and  by  the  terms 
of  his  certificate  that  "he  would  be  bound  by  the  rules  and  regulations 
of  the  order,  now  in  force  or  that  may  hereafter  be  enacted."  All 
that  is  required  of  him  is  a  full  compliance  with  such  laws,  and  there 
is  not  the  slightest  evidence  that  he  failed  personally  in  any  particular 
to  comply  with  any  laws  of  the  order,  present  or  future.  The  only 
failure  was  that  of  the  secretary  of  the  section,  who,  to  say  the  least, 
was  as  much  the  agent  of  the  order  as  he  was  of  Withers,  although 
the  latter  is  sought  to  be  charged  with  his  dereliction  by  a  clause  in- 
serted in  the  general  laws,  long  after  the  certificate  was  issued.  The 
decisive  consideration  is  this:  Chadwick  was  the  agent  of  the  defend- 
ant, and  of  the  defendant  only,  after  the  receipt  of  the  money  from 
Withers.  Under  section  10  he  then  became  responsible  for  it  to  the 
board  of  control.  In  rendering  his  monthly  accounts  and  paying  over 
the  money  he  acted  solely  for  the  defendant.  From  the  time  he  paid 
the  money  to  Chadwick  the  insured  had  no  control  over  him,  and  was 
not  interested  in  its  disposition.  Unless  we  are  to  hold  the  insured 
responsible  for  a  default  of  this  agent,  which  he  could  not  possibly 
prevent,  we  are  bound  to  say  that  his  payment  to  this  agent  discharged 
his  full  obligation  to  the  defendant.     That  it  should  have  the  power 


DUES   AND   ASSESSMENTS   IN    MUTUAL   BENEFIT    SOCIETIES  189 

of  declaring  that  the  default  of  Chadwick,  by  so  much  as  one  day 
(and  it  did  not  exceed  four  days  in  this  case),  to  pay  over  this  mon- 
ey, should  cause  a  forfeiture  of  every  certificate  within  his  jurisdic- 
tion, is  a  practical  injustice  too  gross  to  be  tolerated.     *     *     * 

The  judgments  of  the  Circuit  Court  and  of  the  Court  of  Appeals 
Avere  right,  and  they  are  therefore  affirmed.-" 

2  0  Effect   of   subsequent   by-laws   changing   rate   of   assessment,    see    Rey- 
nolds V.  Supreme  Council  Royal  Arcanum,  ante,  p.  132. 


190  THE    CONSENT  OF    THE  PARTIES — CONCEALMENT 


THE  CONSENT  OF  THE  PARTIES— CONCEALMENT 
I.  What  must  be  Disclosed.^ 


PENN  MUT.  LIFE  INS.  CO.  v.  MECHANICS'  SAVINGS 

BANK  &  TRUST  CO. 

(Circuit  Court  of  Appeals  of  United  States.  Sixth  Circuit,  1S96.     72  Fed.  413, 

19  C.  C.   A.  286,   38  L.  R.   A.   33.) 

In  Error  to  the  Circuit  Court  of  the  United  States  for  the  Middle 
District  of  Tennessee. 

This  action  was  on  a  pohcy  of  insurance  for  $10,000  issued  Decem- 
ber 2,  1892,  by  the  Penn  Mutual  Life  Insurance  Company  to  John 
Schardt,  on  his  own  life.  Schardt  died  April  17,  1893,  during  the 
currency  of  the  policy.  Just  before  his  death  he  had  assigned  the 
policy  to  the  Mechanics'  Savings  Bank  of  Nashville,  to  secure  a 
large  debt  owed  by  him  to  the  bank.  Since  his  death  the  bank  has 
made  a  general  assignment  for  the  benefit  of  creditors  to  J.  J.  Pryor, 
for  whose  benefit,  as  assignee,  this  suit  was  brought.  The  trial  resulted 
in  a  judgment  for  the  full  amount  of  the  policy  and  interest,  in  favor 
of  the  plaintifif  below,  and  the  insurance  company  brings  the  judg- 
ment here  for  review  on  writ  of  error. 

Schardt's  salary  as  teller  was  $1,500,  and  he  had  but  a  small 
amount  of  property.  When  he  died  in  April,  1893,  he  had  $80,000 
of  insurance  on  his  life,  nearly  all  of  which  had  been  written  within 
six  months.  It  was  conceded  that,  for  more  than  a  year  prior  to 
his  death,  Schardt  had  been  constantly  embezzling  the  funds  of  his 
bank,  and  that  his  indebtedness  to  the  bank  thus  criminally  incurred 
amounted  at  the  time  of  the  application  for  this  policy  to  little  less 
than  $100,000,  and  at  his  death  exceeded  that  sum.  He  did  not  dis- 
close the  fact  of  his  crime  to  the  defendant  at  the  time  of  his  ap- 
plication, or  at  any  other  time.  His  death  in  April,  1893,  was 
caused  by  congestion  of  the  brain  and  other  vital  organs,  caused  by 
the  mental  strain  which  a  disclosure  of  his  crime  brought  on. 

The  defendant  requested  the  court  to  instruct  the  jury  to  bring 
in  a  verdict  for  the  defendant  because  it  appeared  by  the  undisputed 
evidence  that  Schardt's  warranties  of  the  truth  of  certain  repre- 
sentations in  regard  to  facts  material  as  a  matter  of  law  had  been 
broken,  and  the  policy  avoided.  Defendant  asked  the  same  instruc- 
tion  on   the    ground   that    Schardt    had    concealed    from    it    and    its 

1  For  discussion  of  principles,  see  Yance  on  Insurance,  §§  90-92.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  p.  1203;    vol.  3,  p.  2007. 


WHAT   MUST   BE    DISCLOSED  191 

agents  the  fact  that  he  was  an  embezzler  in  the  sum  of  $100,000, — 
a  fact  claimed  to  be  material  to  the  risk,  as  a  matter  of  law.  These 
requests  were  refused  by  the  trial  court. 

Before  Taft  and  Lurton,  Circuit  Judges,  and  Hammond,  Dis- 
trict Judge. 

Taft,  Circuit  Judge. ^  *  *  *  'j^j^g  j-j-j^j  court  held,  against  the 
objection  of  defendant,  that,  when  Schardt  was  asked  what  his  oc- 
cupation was,  he  answered  truly  that  he  was  a  bank  teller,  and 
that  the  scope  of  the  question  was  not  such  as  to  require  him  to 
add  that  he  was  an  habitual  embezzler.  We  concur  in  this  view. 
Neither  the  company  nor  Schardt  could  have  thus  understood  the 
question.  The  embezzling  was  merely  misfeasance  in  his  position 
as  teller.  He  was  an  unfaithful  bank  teller.  But  nothing  in  the 
question  called  upon  him  to  say  whether  he  was  a  good  or  bad 
bank  teller.  In  New  York  Bowery  Fire  Ins.  Co.  v.  New  York 
Fire  Ins.  Co.,  17  Wend.  (N.  Y.)  359,  the  issue  was  whether  a 
contract  of  reinsurance  was  avoided  by  the  failure  of  the  company 
seeking  reinsurance  to  communicate  to  the  reinsurer  facts  known 
to  it  reflecting  on  the  character  of  the  original  insured.  The  su- 
preme court  of  New  York  held  that  it  was,  but  in  doing  so  ex- 
pressed, through  Justice  Bronson,  its  opinion  of  what  the  duty  of 
the  original  insured  was  in  this  regard.     *     *     * 

Justice  Bronson's  discussion  related  to  the  disclosure  of  a  fact 
not  inquired  about,  and  the  rule  there  laid  down  was,  of  course, 
not  intended  to  relieve  an  applicant  from  answering  questions  put  to 
him,  which,  in  their  necessary  scope,  require  statements  from  him 
which  relate  to  his  moral  character.  Nevertheless  the  reasoning  of 
the  court  justifies  the  conclusion  that  the  insured  is  not  called  upon 
to  construe  a  simple  question  concerning  his  ordinary  vocation  into 
one  calling  for  a  statement  of  crimes  or  misfeasances  of  which  he 
may  have  been  guilty  in  pursuing  such  vocation.  Then  it  is  said 
that  he  had  expressly  warranted  that,  in  his  statements  and  answers 
in  this  application,  no  circumstances  or  information  had  been  with- 
held touching  his  past  and  present  state  of  health  and  habits  of 
life,  with  which  the  Penn  Mutual  Life  Insurance  Company  ought 
to  be  made  acquainted,  and  that  his  habit  of  embezzling  should 
have  been  communicated,  to  comply  with  that  warranty.  We  are 
of  opinion  that  these  words  refer  to  questions  and  answers  in  the 
application,  and  are  equivalent  to  a  warranty  that  the  answers  to 
the  questions  are  full  and  complete.  The  habits  of  life  referred 
to  are  those  inquired  about  in  the  medical  examination,  and  are 
those  which  have  a  direct  relation  to  physical  health,  and  could 
not  be  construed  to  refer  to  thefts  or  embezzlements  of  which  the 
applicant  may  have  been  guilty,  and  concerning  which  no  inquiry  was 
made. 

2  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


192        THE  CONSENT  OF  THE  PARTIES CONCEALMENT 

But,  even  if  Schardt  was  not  required  by  any  specific  question  ^'O 
disclose  the  fact  of  his  embezzlements,  the  policy  would  still  be 
avoided,  if  it  were  material  to  the  risk,  and  he  intentionally  con- 
cealed it  from  the  company.  This  is  not  controverted.  The  issue 
of  law  between  the  parties  is  whether  the  policy  would  not  be 
avoided,  even  if  his  failure  to  disclose  it  were  due,  not  to  fraudulent 
intent,  but  to  mere  inadvertence,  or  a  belief  that  it  was  not  material. 
It  is  insisted  for  the  plaintiff  in  error  that  the  motive  or  cause  of 
the  nondisclosure  is  unimportant,  if  the  fact  be  found  material  to 
the  risk,  and  was  known  to  the  insured  when  he  obtained  the  in- 
surance. The  trial  court  took  the  other  view,  and  instructed  the 
jury  accordingly.  If  this  were  a  case  of  marine  insurance,  the  con- 
tention for  the  plaintiff  in  error  must  certainly  be  sustained. 

The  great  and  leading  case  on  the  subject  is  that  of  Carter  v. 
Boehm,  3  Burrows,  1905,  where  Lord  Mansfield  explained  the  effect 
of  concealment  of  material  facts  in  insurance  to  avoid  the  policy. 
He  said :  "Insurance  is  a  contract  upon  speculation.  The  special 
facts  upon  which  the  contingent  chance  is  to  be  computed  lie  most 
commonly  in  the  knowledge  of  the  insured  only.  The  underwriter 
trusts  to  his  representations,  and  proceeds  upon  confidence  that  he  does 
not  keep  back  any  circumstance  in  his  knowledge  to  mislead  the 
underwriter  into  a  belief  that  the  circumstance  does  not  exist,  and 
to  induce  him  to  estimate  the  risk  as  if  it  did  not  exist.  The  keeping 
back  such  a  circumstance  is  a  fraud,  and  therefore  the  policy  is 
void.  Although  the  suppression  should  happen  through  mistake, 
without  any  fraudulent  intention,  yet  still  the  underwriter  is  de- 
ceived, and  the  policy  is  void,  because  the  risk  run  is  really  different 
from  the  risk  understood  and  intended  to  be  run  at  the  time  of  the 
agreement." 

Carter  v.  Boehm  was  the  case  of  insurance  of  a  fort  and  ware- 
house in  the  East  Indies  against  capture  by  the  enemy;  and,  al- 
though not  strictly  a  case  of  marine  insurance,  it  has  usually  been 
treated  as  such,  because  of  the  resemblance  of  the  risk,  in  its  specu- 
lative character,  to  that  of  a  merchant  vessel  in  time  of  war.  That 
it  states  the  rule  enforced  by  the  courts  of  this  country  in  cases 
of  marine  insurance  is  established  by  many  decisions.  Perhaps  the 
one  most  recently  considered  by  the  supreme  court  of  the  United 
States  was  a  case  of  reinsurance  of  a  marine  risk.  Sun  Mut.  Ins. 
Co.  V.  Ocean  Ins.  Co.,  107  U.  S.  485,  1  Sup.  Ct.  582,  27  L.  Ed.  337. 

The  very  marked  difference  between  the  situation  of  the  parties 
in  marine  insurance  and  that  of  parties  to  a  fire  or  life  policy  has 
led  many  courts  of  this  country  to  modify  the  rigor  of  the  doctrine 
in  its  application  to  fire  and  life  insurance,  and  to  lean  towards  the 
view  that  no  failure  to  disclose  a  fact  material  to  the  risk,  not  in- 
quired about,  will  avoid  the  policy,  unless  such  nondisclosure  was 
with  intent  to  conceal  from  the  insurer  a  fact  believed  to  be  material ; 
that  is,  unless  the  nondisclosure  was   fraudulent.     In  marine  insur- 


WHAT   MUST   BE    DISCLOSED  193 

ance  the  risk  was  usually  tendered  and  accepted  when  the  vessel 
was  on  the  high  seas,  where  the  insurer  had  no  opportunity  to  ex- 
amine her,  or  to  know  the  particular  circumstances  of  danger  to 
which  she  might  be  exposed.  The  risk  in  such  a  case  is  highly 
speculative,  and  it  is  manifestly  the  duty  of  the  insured  to  advise 
the  insurer  of  every  circumstance  within  his  knowledge  from  which 
the  probability  of  a  loss  can  be  inferred,  and  he  cannot  be  permitted 
to  escape  the  obligation  by  a  plea  of  inadvertence  or  negligence.  In 
cases  of  fire  and  life  insurance,  however,  the  parties  stand  much 
more  nearly  on  an  equality.  The  subject  of  the  fire  insurance  is 
usually  where  the  insurer  can  send  its  agents  to  give  it  a  thorough 
examination,  and  determine  the  extent  to  which  it  is  exposed  to 
danger  of  fire  from  surrounding  buildings,  or  because  of  the  plan 
or  material  of  its  own  structure.  The  subject  of  life  insurance  is 
always  present  for  physical  examination  by  medical  experts  of  the 
insurer,  who  often  acquire,  by  lung  and  heart  tests,  and  by  chemical 
analysis  of  bodily  excretions,  a  more  intimate  knowledge  of  the 
bodily  condition  of  the  applicant  than  he  has  himself. 

Then,  too,  the  practice  has  grown  of  requiring  the  applicant  for 
both  fire  and  life  insurance  to  answer  a  great  many  questions  care- 
fully adapted  to  elicit  facts  which  the  insurer  deems  of  importance 
in  estimating  the  risk.  In  life  insurance,  not  only  is  the  applicant 
required  to  answer  many  general  questions  concerning  himself  and 
his  ancestors,  but  he  is  also  subjected  to  an  extended  examination 
concerning  his  bodily  history.  This  was  true  in  the  case  at  bar. 
When  the  applicant  has  fully  and  truthfully  answered  all  these  ques- 
tions, he  may  rightfully  assume  that  the  range  of  the  examination 
has  covered  all  matters  within  ordinary  human  experience  deemed 
material  by  the  insurer,  and  that  he  is  not  required  to  rack  his 
memory  for  circumstances  of  possible  materiality,  not  inquired  about, 
and  to  volunteer  them.  He  can  only  be  said  to  fail  in  his  duty  to 
the  insurer  when  he  withholds  from  him  some  fact  which,  though 
not  made  the  subject  of  inquiry,  he  nevertheless  believes  to  be  ma- 
terial to  the  risk,  and  actually  is  so,  for  fear  it  would  induce  a  re- 
jection of  the  risk,  or,  what  is  the  same  thing,  with  fraudulent  intent. 

A  strong  reason  why  the  rule  as  to  concealment  should  not  be 
so  stringent  in  cases  of  life  insurance  as  in  marine  insurance  is  that 
the  question  of  concealment  rarely,  if  ever,  arises  until  after  the 
death  of  the  applicant,  and  then  the  mouth  of  him  whose  silence 
and  whose  knowledge  it  is  claimed  avoid  the  policy  is  closed.  The 
application  is  generally  prepared,  and  the  questions  are  generally 
answered,  under  the  supervision  of  an  eager  life  insurance  solicitor. 
Only  the  barest  outlines  of  the  conversations  between  the  applicant 
and  the  solicitor  are  reduced  to  writing.  The  applicant  is  likely  to 
trust  the  judgment  of  the  solicitor  as  to  the  materiality  of  everything 
not  made  the  subject  of  express  inquiry,  and,  with  the  solicitor's 
CooLEY  Ins. — 13 


194         THE  CONSENT  OF  THE  PARTIES CONCEALMENT 

Strong  motive  for  securing  the  business,  there  is  danger  that  facts 
communicated  to  him  may  not  find  their  way  into  the  appHcation. 
With  respect  to  a  contract  thus  made,  it  is  clearly  just  to  require 
that  nothing  but  a   fraudulent  nondisclosure   shall  avoid  the  policy. 

Nor  does  this  rule  result  in  practical  hardship  to  the  insurer,  for 
in  every  case  where  the  undisclosed  fact  is  palpably  material  to  the 
risk  the  mere  nondisclosure  is  itself  strong  evidence  of  a  fraudulent 
intent.  Thus,  if  a  man,  about  to  fight  a  duel,  should  obtain  life  in- 
surance without  disclosing  his  intention,  it  would  seem  that  no  argu- 
ment or  additional  evidence  would  be  needed  to  show  the  fraudulent 
character  of  the  nondisclosure.  On  the  other  hand,  where  men  may 
reasonably  differ  as  to  the  materiality  of  a  fact  concerning  which 
the  insurer  might  have  elicited  full  information,  and  did  not  do  so, 
the  insurer  occupies  no  such  position  of  disadvantage  in  judging  of  the 
risk  as  to  make  it  unjust  to  require  that  before  the  policy  is  avoided  it 
shall  appear,  not  only  that  the  undisclosed  fact  was  material,  but 
also  that  it  was  withheld  in  bad  faith.  To  hold  that  good  faith  is 
immaterial  in  such  a  case  is  to  apply  the  harsh  and  rigorous  rule  of 
marine  insurance  to  a  class  of  insurance  contracts  dififering  so  ma- 
terially from  marine  policies  in  the  circumstances  under  which  the 
contracting  parties  agree  that  the  reason  for  the  rule  ceases.  The 
authorities  are  not  uniform,  and  we  are  able  to  take  that  view 
which  is  more  clearly  founded  in  reason  and  justice.  In  England, 
the  tendency  of  the  courts  has  been  to  hold  that  the  same  rules  apply 
to  fire  and  life  insurance  as  to  marine  insurance,  in  reference  to  the 
efifect  of  the  concealment  of  material  facts.     *     *     * 

Coming  now  to  the  American  authorities,  we  find  very  early  in 
reported  cases  a  disposition  to  depart  from  the  strict  rules  of  marine 
insurance  law  in  the  consideration  of  fire  and  life  policies.  In  Loan 
Co.  V.  Snyder,  16  Wend.  481,  30  Am.  Dec.  118,  Chancellor  Wal- 
worth, delivering  the  opinion  of  the  supreme  court  of  errors  of 
New  York,  refers  to  the  peculiar  rule  of  construction  applied  to 
that  "anomalous  and  informal  instrument  called  a  'marine  policy,'  " 
and  expresses  the  opinion  that  it  is  not  to  be  applied  in  its  strict- 
ness to  fire  policies.  The  same  view  is  expressed  in  Jolly's  Adm'rs 
V.  Baltimore  Equitable  Soc,  1  Har.  &  G.  295,  18  Am.  Dec.  288, 
by  the  court  of  appeals  of  Maryland. 

In  Burritt  v.  Insurance  Co.,  5  Hill,  188,  192  (40  Am.  Dec.  345), 
Bronson,  J.,  speaking  for  the  supreme  court  of  New  York,  after 
referring  to  the  rule  by  which  nondisclosure  of  material  facts  avoids 
a  marine  policy,  although  no  inquiry  be  made,  and  although  it  is 
the  result  of  innocent  mistake  or  inadvertence,  said:  "But  this  doc- 
trine cannot  be  applicable — at  least,  not  in  its  full  extent — to  policies 
against  fire.  If  a  man  is  content  to  insure  my  house  without  taking 
the  trouble  to  inquire  of  what  materials  it  is  constructed,  how  it  is 
situated  in  reference  to  other  buildings,  or  to  what  uses  it  is  ap- 
plied,  he   has  no   ground   for   complaint   that   the   hazard   proves   to 


WHAT    MUST   BE    DISCLOSED  195 

be  greater  than  he  had  anticipated,  unless  I  am  chargeable  with 
some  misrepresentation  concerning  the  nature  or  extent  of  the  risk. 
It  is  therefore  the  practice  of  companies  which  insure  against  fire  to 
make  inquiries  of  the  assured,  in  some  form,  concerning  all  such 
matters  as  are  deemed  material  to  the  risk,  or  which  may  afifect  the 
amount  of  premium  to  be  paid.  This  is  sometimes  done  by  the 
conditions  of  insurance  annexed  to  the  policy,  and  sometimes  by  re- 
quiring the  applicant  to  state  particular  facts  in  a  written  application 
for  insurance.  When  thus  called  upon  to  speak,  he  is  bound  to  make 
a  true  and  full  representation  concerning  all  the  matters  brought  to 
his  notice,  and  any  concealment  will  have  the  like  effect  as  in  the 
case  of  a  marine  risk." 

The  use  of  "concealment,"  in  this  last  passage,  should  be  re- 
marked. It  means  there  a  failure  fully  to  answer  a  question  put. 
*  *  *  It  is  not  a  mere  silence  upon  a  matter  not  made  the  sub- 
ject of  inquiry.  It  is  necessary  to  determine  in  which  sense  the  word 
is  used  in  decided  cases,  before  their  bearing  on  the  present  question 
can  be  clearly  understood.  Here  we  are  considering  only  the  duty 
of  the  insured  in  respect  to  something  not  inquired  about.  The  su- 
preme court  of  the  United  States,  in  Clark  v.  Insurance  Co.,  8 
How.  235,  249,  12  L.  Ed.  1051,  suggests  a  distinction  between  fire 
and  marine  insurance,  in  reference  to  the  obligation  of  the  insured 
to  speak  when  not  inquired  of,  and  cites  in  support  of  it  the  Mary- 
land and  New  York  cases  just  referred  to.     *     *     * 

In  Insurance  Co.  v.  Harmer,  2  Ohio  St.  452,  59  Am.  Dec.  684, 
which  was  a  fire  insurance  case,  the  defense  was  made  that,  previous 
to  the  issuing  of  the  policy,  there  had  been  a  fire  in  the  insured 
premises,  which  had  not  been  disclosed  to  the  insurer.  The  court 
charged  the  jury  that,  if  they  found  the  circumstance  to  be  ma- 
terial to  the  risk,  the  policy  was  void,  "whether  concealment  re- 
sulted from  fraud,  accident,  or  mistake."  Judge  Ranney — one  of 
Ohio's  greatest  judges — presided  at  the  circuit  in  this  cause,  and 
delivered  the  opinion  of  the  supreme  court.  In  the  supreme  court 
he  expressed  the  view  that  he  was  in  error  in  his  charge,  in  thus 
enforcing  the  rule  of  marine  insurance  in  a  fire  insurance  case.  Such 
an  expression  of  opinion  was  not  necessary  to  the  conclusion  in  the 
case,  but  the  high  standing  of  the  judge  gives  great  weight  to  even 
his  obiter  dictum.  He  said:  "It  is  not  now  true,  whatever  may 
be  thought  of  the  older  authorities,  that  there  is  no  difference  in 
this  respect  [i.  e.  as  to  the  rule  of  concealment]  between  marine  and 
fire  insurance,  nor  that  a  failure  to  disclose  every  fact  material  to 
the  risk,  upon  which  information  is  not  asked  for,  or  suppressed 
with  a  fraudulent  intent,  will  avoid  a  policy  of  the  latter  description. 
The  reason  of  the  rule,  and  the  policy  in  which  it  was  founded,  in 
its  application  to  marine  risks,  entirely  fail  when  applied  to  fire 
policies.  In  the  former  the  subject  of  insurance  is  generally  beyond 
the  reach,  and  not  open  to  the  inspection,  of  the  underwriter,  often 


19G         THE  CONSENT  OF  THE  PARTIES CONCEALMENT 

in  distant  ports  or  upon  the  high  seas,  and  the  pecuHar  perils  to 
which  it  may  be  exposed,  too  numerous  to  be  anticipated  or  inquired 
about,  known  only  to  the  owners  and  those  in  their  employ;  while 
in  the  latter  it  is,  or  may  be,  seen  and  inspected  before  the  risk  is 
assumed,  and  its  construction,  situation,  and  ordinary  hazards  as 
well  appreciated  by  the  underwriter  as  the  owner.  In  marine  in- 
surance the  underwriter,  from  the  very  necessities  of  his  undertak- 
ing, is  obliged  to  rely  upon  the  assured,  and  has  therefore  the  right 
to  exact  a  full  disclosure  of  all  the  facts  known  to  him  which  may 
in  any  way  affect  the  risk  to  be  assumed.  But  in  fire  insurance  no 
such  necessity  for  reliance  exists,  and,  if  the  underwriter  assumes 
the  risk  without  taking  the  trouble  to  either  examine  or  inquire,  he 
cannot  very  well,  in  the  absence  of  all  fraud,  complain  that  it  turns 
out  to  be  greater  than  he  anticipated.  And  so  are  the  latest  and 
best   authorities."     *     *     * 

The  number  of  life  insurance  cases  in  which  the  question  has  arisen 
is  small.  In  Rawls  v.  Insurance  Co.,  27  N.  Y.  287,  84  Am.  Dec.  280, 
the  court  of  appeals  held  that,  where  an  applicant  for  life  insur- 
ance fully  and  truly  answered  all  questions  put  to  him  by  the  com- 
pany, the  mere  omission  to  state  matter,  though  material  to  the  risk, 
would  not  be  a  concealment,  and  would  not  affect  the  validity  of 
the  policy,  because  the  applicant  might  presume  that  the  insurer  had 
questioned  him  on  all  subjects  which  he  deemed  material.  In  Mal- 
lory  V.  Insurance  Co.,  47  N.  Y.  52,  57,  7  Am.  Rep.  410,  the  same 
court  sustained  a  charge  to  the  jury,  that,  if  the  applicant  did  not 
conceal  any  fact  which,  in  his  own  mind,  was  material  in  making 
the  application,  the  policy  was  not  void.  See,  also,  Cheever  v.  In- 
surance Co.,  4  Am.  Law  Rec.  155. 

In  Vose  V.  Insurance  Co.,  6  Cush.  (Mass.)  42,  the  supreme  ju- 
dicial court  of  Massachusetts  announced  the  principle,  as  applicable 
to  life  policies,  that  the  concealment  of  a  material  fact  will  avoid 
the  policy,  though  it  is  the  result  of  accident  or  negligence,  and  not 
of  design.  The  case  did  not  call  for  the  application  of  such  a  prin- 
ciple. The  applicant  was  asked  if  he  was  afflicted  with  any  disease. 
He  answered  that  he  was  not.  At  the  time  he  had  consumption, 
and  had  experienced  several  of  the  premonitory  symptoms.  His 
answers  were  made  the  basis  of  the  policy.  It  is  probable  that  the 
term  "concealment,"  as  used  in  this  case,  refers  to  an  incomplete 
answer  to  a  general  question,  rather  than  a  failure  to  volunteer  a 
fact  not  asked  for,  because  the  court  uses  in  the  opinion  language 
which  is  incorporated  in  the  headnote  as  follows:  "It  is  the  duty  of 
the  insured  to  disclose  all  material  facts  within  his  knowledge.  Al- 
though specific  questions,  applicable  to  all  men,  are  proposed  by  the 
insurers,  yet  there  may  be  particular  circumstances  affecting  the  in- 
dividual to  be  insured,  which  are  not  likely  to  be  known  to  the  in- 
surers; and  the  concealment  of  a  material  fact,  when  a  general 
question  is  put  by  the  insurers,  at  the  time  of  eft'ecting  the  policy, 
which  would  elicit  that  fact,  will  vitiate  the  policy." 


WHEN    FACTS   CONCEALED   ARE   TO    BE    DEEMED   MATERIAL        197 

r,ut,  whatever  the  effect  of  this  case,  we  think  the  mo  lern  tend- 
ency, 'even  of  Massachusetts  decisions,  is  to  require  that  a  non- 
disclosure of  a  fact  not  inquired  about  shall  be  fraudulent,  before 
vitiating  the  i:olicy ;  and,  as  already  stated,  this  view  is  founded 
on  the  better  reason.  The  subject  is  by  no  means  as  clear,  upon 
the  authorities,  as  could  be  wished,  and  the  text  writers  find  much 
difficulty  in  reconciling  the  cases.  May,  Ins.  (3d.  Ed.)  §§  202,  203, 
207.  We  hold  that  the  charge  of  the  circuit  court  upon  this  question 
was  correct.     *     *     *     Reversed.* 


II.  When  Facts  Concealed  are  to  be  Deemed  Material  * 


MASCOTT  V.  FIRST  NAT.  FIRE  INS.  CO. 

(Supreme  Ci.urt  of  Vermont,  1S96.     69  Vt.  116,  37  Atl.  255.) 

Assumpsit  by  Fred  E.  Mascott  and  wife  against  the  First  National 
Fire  Insurance  Company  on  a  fire  insurance  policy.  At  the  close  of 
the  testimony  defendant  moved  for  a  verdict,  and,  the  motion  being 
denied,  did  not  desire  to  go  to  the  jury  on  any  issue  of  fact.  The 
court  then  directed  a  verdict,  and  rendered  judgment  thereon,  for 
plaintiff,  and  defendant  excepts. 

Start,  J.^  The  action  is  assumpsit  upon  a  fire  insurance  contract, 
by  which  the  plaintiffs  were  insured  in  the  sum  of  $960  on  their 
two-story  frame  building,  occupied  for  a  storehouse  and  paint  shop. 
The  policy  contained  the  following  provision :  "This  entire  policy  shall 
be  void  if  the  insured  has  concealed  or  misrepresented,  in  writing  or 
otherwise,  any  material  fact  or  circumstance  concerning  this  insur- 
ance, or  the  subject  thereof;  or  if  the  interest  of  the  insured  in 
the  property  be  not  truly  stated  herein."     *     *     * 

The  clause  in  the  policy  against  concealment  and  misrepresentation 
provides  that  the  entire  policy  shall  be  void  if  the  insured  has  con- 
cealed or  misrepresented,  in  writing  or  otherwise,  any  material  fact 
or  circumstance  concerning  the  insurance,  or  the  subject  thereof; 
or  if  the  interest  of  the  insured  in  the  property  be  not  truly  stated 
therein.  There  was  a  mortgage  of  $200  on  the  property,  and  this 
fact  was  not  represented  to  the  defendant  at  the  time  the  policy  was 
issued;  and  it  is  insisted  by  the  defendant  that  this  was  a  conceal- 
ment of  a  material  fact.  The  evidence  tended  to  show  that  the 
property  was  worth  $2,500.  It  did  not  appear  on  trial  in  the  court 
below  that  any  written  application   for  the  policy  was  made  by  the 

3  The  judgment  was  reversed  ou  the  grouiul  of  error  in  the   exclusion  of 
certain  evidence. 

4  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  93,  94. 
6  Fart  of  the  opinion  is  omitted. 


198  THE    CONSENT   OP    THE   PARTIES CONCEALMENT 

insured,  nor  that  the  agent  of  the  company  made  any  inquiry  as  to 
incumbrance. 

The  terms  of  the  condition  rehed  upon  by  the  defendant  are  not 
those  which  would  naturally  direct  the  attention  of  the  insured  to 
the  necessity  of  disclosing  incumbrances  upon  the  property,  or  sug- 
gest that  they  were  material  to  the  risk.  A  concealment  of  a  fact 
not  material  would  not  avoid  the  policy.  The  question  of  whether 
the  policy  shall  be  void  by  reason  of  concealment  or  misrepresentation 
is,  by  the  terms  of  the  policy,  made  to  depend  upon  their  materiality. 
The  fact  that  there  is  a  mortgage  for  $200  would  not  seem  to  be 
material  in  effecting  an  insurance  for  $960.  The  defendant  did  not 
desire  to  go  to  the  jury  upon  the  question  of  whether  such  con- 
cealment was  material,  and  we  cannot,  in  view  of  the  holding  of 
the  court  below,  assume  that  it  was.  As  neither  party  desired  to 
go  to  the  jury  on  any  issue  of  fact,  it  was  for  the  court  to  direct 
a  verdict  on  such  a  state  of  facts  as  it  regarded  proved  by  the  evi- 
dence, and  the  verdict  will  be  upheld  if  there  is  any  evidence  to 
sustain  it.     Robinson  v.  Larabee,  58  Vt.  652,  5  Atl.  512. 

The  evidence  tended  to  show  that,  if  there  was  concealment  or 
misrepresentation,  it  was  not  material.  The  insured  were  the  owners 
of  the  property,  notwithstanding  there  was  a  small  mortgage  thereon ; 
and  under  the  findings  of  the  court  below  it  must  be  held  that  there 
was  no  material  misrepresentation  or  concealment  respecting  such 
ownership  by  reason  of  the  undisclosed  mortgage.  If  the  company 
had  intended  that  the  policy  should  be  void  if  the  insured  omitted 
to  mention  incumbrances,  it  could  have  made  that  intention  clear 
by  inserting  the  word  "incumbered,"  instead  of  leaving  it  for  the 
insured  to  conjecture  respecting  the  materiality  of  facts  and  cir- 
cumstances. The  insured  might  well  regard  the  existence  of  a  small 
mortgage  upon  their  property  an  immaterial  fact,  inasmuch  as  their 
attention  was  not  directed  to  the  subject  of  incumbrance  by  the  de- 
fendant's agent  or  by  the  policy. 

A  misrepresentation  in  insurance  is  a  statement  of  something  as 
a  fact  which  is  untrue,  and  which  the  insured  states  knowing  it 
to  be  untrue,  or  which  he  states  positively  as  true  without  knowing 
it  to  be  true,  with  intent  to  deceive,  and  which  has  a  tendency  to 
mislead,  such  fact  in  either  case  being  material ;  and  the  materiality 
of  a  representation  or  concealment  is  a  question  for  the  jury.  Daniels 
V.  Insurance  Co.,  12  Cush.  (Mass.)  416.  59  Am.  Dec.  192;  Clark  v. 
Insurance  Co.,  40  N.  H.  333,  77  Am.  Dec.  721.  Concealment,  ac- 
cording to  the  law  of  insurance,  is  a  designed  and  intentional  with- 
holding of  any  fact  material  to  the  risk  which  the  assured  ought 
in  honesty  and  good  faith  to  communicate ;  and  any  fact  is  material, 
the  knowledge  or  ignorance  of  which  would  materially  influence  the 
insurer  in  making  the  contract  at  all,  or  in  estimating  the  degree  and 
character  of  the  risk,  or  in  fixing  the  rate  of  insurance.  Clark  v. 
Insurance  Co.,  supra.     *     *     *     Affirmed. 


CONSENT   OF    PARTIES REPRESENTATIONS   AND    WARRANTIES  199 


THE  CONSENT  OF  THE  PARTIES— REPRESENTA- 
TIONS AND  WARRANTIES 

I.  The  Nature  and  Effect  of  Representations  ^ 


FREEDMAN  v.  FIRE  ASS'N  OF  PHILADELPHIA. 

(Supreme  Court  of  Pennsylvania,  1895.     168  Pa.  249,  32  Atl.  39.) 

Action  by  R.  Freedman  against  the  Fire  Association  of  Philadel- 
phia.    Judgment  for  plaintiff.     Defendant  appeals. 

Fell,  J.^  The  policy  of  insurance  upon  which  suit  was  brought 
was  upon  a  stock  of  general  merchandise  in  a  country  store.  It 
was  insured  as  the  property  of  R.  Freedman.  It  was  owned  by 
Rosa  Freedman,  a  married  woman,  and  was  in  charge  of  her  brother- 
in-law,  Louis  Freedman,  who  conducted  the  business  at  the  store. 
She  resided  with  her  husband,  some  50  miles  distant  from  the 
place  where  the  business  was  carried  on,  and  gave  it  no  supervision 
whatever.  The  evidence  at  the  trial  was  uncontradicted  that  the 
insurance  had  been  procured  by  her  agent  on  the  representation  made 
to  the  agent  of  the  insurance  company  that  "R.  Freedman  was  a  suc- 
cessful business  man,"  and  that  the  policy  was  issued  under  the 
belief  based  upon  representations  made  that  the  company  was 
insuring  a  stock  of  goods  owned  by  a  business  man,  who  was  per- 
sonally conducting  the  business,  and  that  the  risk  would  not  have 
been  accepted  had  the  truth  been  known.  It  was  also  undisputed 
that  the  agents  of  the  company  had  no  knowledge  that  the  repre- 
sentations were  incorrect  until   after  the  loss. 

The  jury  was  instructed  that,  if  the  defendant  accepted  the  risk 
because  of  these  representations,  and  would  not  otherwise  have  done 
so,  the  policy  was  void  because  of  the  fraud  practiced.  It  was 
clearly  an  imposition  upon  the  company  to  procure  a  policy  upon  the 
representation  that  the  property  insured  was  owned  by  and  in  charge 
of  a  successful  business  man,  when  in  fact  the  title  was  in  a  married 
woman,  who  exercised  no  supervision  over  it.  The  actual  business 
risk  because  of  the  want  of  personal  supervision  by  the  owner  and 
the  moral  risk  were  both  greater.  Whether  greater  or  less,  they 
were   different.     It  was  important   to  the  company   to  know   whose 

1  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  98.  99.  See,  also, 
Cooley.  Briefs  on  the  Law  of  Insurance,  vol.  2,  pp.  1120,  1232;  vol.  3,  pp. 
1926,  "2023. 

2  Part  of  the  opinion  is  omitted. 


200 


CONSENT   OP    PARTIES REPRESENTATIONS   AND    WARRANTIES 


property  it  was  insuring,  in  whose  charge  it  was,  and  every  fact 
which  affected  the  risk ;  and  any  fraud  or  imposition  in  these  matters 
went  directly  to  the  foundation  of  the  contract.     *     *     *     Reversed.^ 


SEAL  V.  FARMERS'  &  MERCHANTS'  INS.  CO. 

(Supreme  Court  of  Nebraska,  1899.     59  Neb.  253,  80  N.  W.  807.) 

Action  by  Lydia  G.  Seal  against  the  Farmers'  &  ^lerchants'  In- 
surance Company.  Judgment  for  defendant.  Plaintiff  brings  error. 
Sui^uvAN,  J.  This  was  an  action  by  Lydia  G.  Seal  against  the 
Farmers'  &  Merchants'  Insurance  Company  to  recover  on  a  fire  policy. 
The  jury,  in  obedience  to  a  peremptory  instruction,  found  the  issues 
in  favor  of  the  defendant,  and,  a  motion  for  a  new  trial  having 
been  denied,  judgment  was  rendered  on  the  verdict.  The  insured 
property,  a  dwelling  house  in  the  city  of  Lincoln,  was.  at  the  date 
of  the  policy,  owned  by  Harriet  A.  Coffman.  and  incumbered  by  a 
first  mortgage  in  favor  of  the  plaintiff  for  $2,300,  and  by  a  second 
mortgage  in  favor  of  J.  H.  McMurtry  for  $2,200.  W.  B'.  Seal,  the 
plaintiff's  agent,  was  engaged  in  the  business  of  loaning  money  on 
real  estate,  and  was  in  the  habit  of  applying  to  the  defendant's  agent, 
B.  W.  Richards,  for  insurance  to  protect  his  loans. 

On  July  19,  1894,  Seal  called  on  Richards,  and  made  a  verbal 
application  for  a  policy  on  the  Coffman  property.  What  then  tran- 
spired pertinent  to  the  question  here  considered  is  shown  by  the 
following  testimony  of  Richards:  "O.  What  inquiry  did  you  make 
about  incumbrance,  and  what  did  Mr.  Seal  state  to  you  about  in- 
cumbrance? A.  Why,  I  asked  Mr.  Seal  this  question,  as  I  do  in- 
variably, for  the  amount  of  incumbrance  upon  the  property,  and 
he  said  it  was  $2,300.  I  think  I  asked  him  who  the  policy  should 
be  made  payable  to,  and  he  said  Lydia  G.  Seal  and  J.  H.  McMurtry." 

This  testimony  is  not  disputed.  Neither  is  it  claimed  that  there 
was  any  disclosure  of  the  $2,200  mortgage,  or  that  the  company 
knew  of  its  existence,  before  the  loss  occurred.  The  policy  pro- 
vides that:  'Tf  the  property  above  mentioned,  or  any  part  thereof, 
be,  or  shall  hereafter  become,  mortgaged  or  otherwise  incumbered, 
*  *  *  without  notice  to  and  consent  of  this  company  indorsed 
hereon,  then,  and  in  every  such  case,  this  shall  be  void." 

It  is  shown  conclusively  that  E.  A.  Becker,  the  secretary  and  ex- 
aminer of  the  company,  was  influenced  to  accept  the  risk  and  issue 
the  policy  by  the  representation  that  the  incumbrance  on  the  property 
was  $2,300.  He  testified  that,  under  the  rules  of  the  company,  the 
risk  would  have  been  declined  had  the  actual  amount  of  the  incum- 

3  Compare  British  &  Foreign  Marine  Ins.  Co.  v.  Cummings,  113  Md    350 
76  Atl.  571  (1910). 


THE  NATURE  AND  EFFECT  OF  REPRESENTATIONS       201 

brance  been  disclosed.  What  is  commonly  known  as  the  "loss  pay- 
able clause,"  is  as  follows:  "Notice  accepted  of  an  incumbrance  of 
$2,300  on  premises  herein  described.  Loss,  if  any,  under  this  policy, 
first  payable  to  Lydia  G.  Seal,  mortgagee,  as  her  interest  may  appear. 
After  the  interest  of  Lydia  G.  Seal  as  mortgagee  has  been  satisfied, 
loss,  if  any,  payable  to  Jas.  H.  McMurtry  or  assigns,  mortgagee,  as 
his  interest  may  appear." 

The  plaintifif  contends  that  this  clause  advised  the  company  that 
both  she  and  McMurtry  had  mortgage  liens  on  the  property,  and 
that,  therefore,  the  representation  in  regard  to  the  incumbance  should 
be  construed  as  having  reference  to  and  covering  only  the  plaintiff's 
mortgage.  We  are  not  able  to  accept  this  view  of  the  matter.  The 
policy  was  issued  at  the  instance  of  W.  B.  Seal,  and  the  quoted 
testimony  gives  no  indication,  we  think,  that  he  intended  to  convey 
to  the  insurer  the  idea  that  the  incumbrance  mentioned  was  owned 
exclusively  by  his  principal.  The  just  interpretation  is  that  the  sum 
named  was  intended  to  cover  all  liens  to  which  the  property  was 
subject.  As  there  was  nothing  said  about  the  amount  of  either  mort- 
gage, the  natural  inference  would  be  that  the  aggregate  of  both 
liens  was  $2,300.  There  is  nothing  to  show  that  the  misstatement 
with  respect  to  the  incumbrance  was  fraudulently  made,  and  we  as- 
sume that  it  was  the  result  of  an  honest  mistake  on  the  part  of 
Mr.  Seal. 

The  question,  then,  is  whether,  under  the  conceded  facts,  the  mis- 
representation rendered  the  contract  void.  It  has  been  held  that,  when 
the  application  is  oral,  and  no  inquiry  is  made  as  to  the  character  or 
condition  of  the  title,  mere  silence  will  not  avoid  the  policy.  In- 
surance Co.  V.  Bachler,  44  Neb.  549,  62  N.  W.  911;  Insurance  Co. 
V.  Bohn,  48  Neb.  743,  67  N.  W.  774;  Slobodisky  v.  Insurance  Co., 
53  Neb.  816,  74  N.  W.  270.  But  we  know  of  no  case  holding  that 
the  misstatement  of  a  material  fact  inducing  the  acceptance  of  the 
risk  will  not  vitiate  the  contract. 

When  the  insurer  makes  inquiry  about  facts  material  to  the  risk, 
he  is  justified  in  acting  on  the  assumption  that  the  information  im- 
parted by  the  applicant  for  insurance  is  correct.  He  is  entitled  to 
know  whether  the  property  to  be  insured  is  incumbered,  and.  if  so, 
to  what  extent,  so  that  he  may  act  intelligently  in  determining 
whether  he  will  accept  or  decline  the  risk.  The  representations  of 
the  applicant  become  the  basis  of  insurance,  and,  if  they  be  false 
touching  matters  material  to  the  risk,  the  contract  obtained  through 
their  influence  cannot  be  enforced;  and  it  is  in  such  case  quite  im- 
material whether  the  misstatement  resulted  from  bad  faith  or  from 
accident  or  ignorance.  Davenport  v.  Insurance  Co.,  6  Cush.  (^lass.) 
340;  Hayward  v.  Insurance  Co.,  10  Cush.  (Mass.)  444;  Brown  v. 
Insurance  Co.,  11  Cush.  (Mass.)  280;  Jacobs  v.  Insurance  Co.,  7 
Allen  (Mass.)  132;  Anderson  v.  Fitzgerald,  4  H.  L.  Cas.  484;  Byers 
v.  Insurance  Co.,  35  Ohio  St.  606,  35  Am.  Rep.  623;    Ryan  v.  In- 


202  CONSENT   OF    PARTIES REPRESENTATIONS  AND    WARRANTIES 

surance  Co.,  46  Wis.  671,   1   N.  W.  426;    Glade  v.  Insurance  Co., 
56  Iowa,  400,  9  N.  W.  320. 

Our  conclusion  is  that  the  company  was  induced  to  issue  the  policy 
in  suit  by  the  false  representation  as  to  a  material  fact  connected 
with  the  subject-matter  of  the  contract,  that  the  condition  against 
undisclosed  liens  was  broken,  and  that  the  district  court  was,  there- 
fore, right  in  directing  a  verdict  for  the  defendant.  Since  this 
conclusion  leads  to  an  affirmance  of  the  judgment,  other  questions 
discussed  by  counsel  need  not  be  considered.  The  judgment  is 
affirmed.* 


II.  Promissory  Representations  " 


KIMBALL  V.  .^TNA  INS.  CO. 

(Supreme  Judicial   Court   of  Massacliusetts,   1S65.     9   Allen,   540,   85   Am. 

Dec.  786.) 

Two  actions  of  contract  on  policies  of  insurance  issued  by  the  de- 
fendants respectively  upon  a  dwelling-house  of  the  plaintiff  in  Brad- 
ford, dated  January  17,  1862,  and  payable  in  case  of  loss  to  Jacob 
Kimball,  mortgagee. 

The  policy  of  the  ^tna  Company  contained  the  following  provi- 
sions: "It  being  covenanted  as  a  condition  of  this  contract  that  the 
company  are  not  to  be  liable  *  *  *  for  loss  or  damage,  if  the 
assured  in  the  written  or  verbal  application  for  insurance  makes  any 
erroneous  representation  materially  increasing  the  risk."  "Any  chana^e 
w^ithin  the  control  of  the  assured,  material  to  the  risk,  shall  avoid  this 
policy." 

The  policy  of  the  Springfield  Company  contained  the  following 
provisions:  "If  the  situation  or  circumstances  affecting  the  risk  there- 
upon shall  be  so  altered  or  changed  by  or  with  the  advice,  agency  or 
consent  of  the  assured,  as  to  increase  the  risk  thereupon  *  *  * 
the  risk  thereupon  shall  cease  and  determine,  and  the  policy  be  null 
and  void."  "If  the  premises  insured  shall  be  vacated  and  so  remain 
for  thirty  days,  without  notice  to  this  company,  this  policy  shall  cease 
and  determine." 

The  two  actions  were  tried  together  in  this  court,  before  Metcalf, 
J.,  and  the  defendants  offered  to  prove  that  they  had  issued  previous 
policies  on  the  same  premises,  which  were  to  expire  on  the  17th  of 
January  1862;   that  the  house  was  then  unoccupied;    that  on  the  6th 

*  Compare  Mascott  v.  Insurance  Co.,  ante,  p.   197. 

5  For  discussion  of  principles,  see  Vance  on  insurance,  §  101.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  p.  1477. 


PROMISSORT    REPRESENTATIONS  203 

of  January,  1862,  an  incendiary  attempt  was  made  to  burn  it,  of 
which  the  plaintiff  informed  the  accent  of  the  defendants ;  that  on  the 
17th  of  January  the  plaintiff  applied  for  a  renewal  of  ihe  policies  to 
the  agent,  who  informed  him  that  unless  the  house  was  occupied  he 
could  not  renew  them  without  consulting  the  companies  and  stating 
all  the  facts,  and  in  that  case  he  did  not  think  the  companies  would 
authorize  him  to  insure  the  property  at  all,  but  if  occupied  it  could  be 
insured  at  the  same  rate  as  in  previous  years.  The  plaintiff  said  in 
reply  that  the  agent  might  renew  the  policies  as  before,  as  the  house 
would  be  occupied  ;  that  he  had  a  man  in  view  who  was  going  to  oc- 
cupy it.  The  agent  thereupon  wrote  and  delivered  the  policies.  The 
house  remained  unoccupied  till  June  26,  1862,  when  it  was  burned  by 
an  incendiary.  It  was  admitted,  for  the  purposes  of  this  trial,  that 
the  occupancy  of  the  house  w'as  a  material  fact,  under  the  circum- 
stances. 

The  judge  ruled  that  the  representations,  if  proved,  would  not  con- 
stitute a  legal  defence,  and  instructed  the  jury  to  return  verdicts  for 
the  plaintiff,  which  was  accordingly  done.  The  defendants  alleged  ex- 
ceptions. 

Gray,  J."  The  ruling  of  the  judge  who  presided  at  the  trial  was  in 
accordance  wath  the  opinion  which  had  been  repeatedly  expressed  by 
this  court  in  previous  cases.  Higginson  v.  Dall,  13  Mass.  99,  100; 
Whitney  v.  Haven,  13  Mass.  172;  Rice  v.  New  England  Ins.  Co.,  4 
Pick.  442,  443 ;  Bryant  v.  Ocean  Ins.  Co.,  22  Pick.  200.  That  opin- 
ion has  been  ingeniously  and  elaborately  criticised  and  controverted 
by  learned  writers  to  whose  commentaries  the  defendants  have  refer- 
red ;  but  a  careful  re-examination  has  satisfied  us  that  it  is  founded 
upon  elementary  principles  of  the  law  of  insurance,  and  supported  by 
the  adjudged  cases  in  England  and  in  the  United  States. 

The  contract  of  insurance  is  a  contract  to  indemnify  the  owner  of 
certain  property  against  certain  risks.  This  contract  is  founded  upon 
the  representations  previously  made  by  the  assured  to  the  insurer. 
The  condition  and  circumstances  of  the  property  are  within  the  knowl- 
edge of  the  owner  more  than  of  the  insurer,  and  must  be  truly  rep- 
resented by  the  former  to  the  latter,  in  order  that  he  may  estimate 
the  risk  before  entering  into  the  contract.  In  making  this  representa- 
tion, the  utmost  good  faith  is  required.  If  an  existing  fact  material  to 
the  risk  is  misrepresented  by  the  owner  to  the  underwriter,  the  minds  of 
the  parties  never  meet,  they  agree  on  no  subject  matter  to  which  the 
contract  can  attach,  the  contract  founded  on  such  misrepresentation 
never  takes  effect,  the  underwriter  may  treat  it  as  a  nullity,  and  the 
other  party,  unless  chargeable  with  fraud,  may  recover  back  the  premi- 
um. If  representations,  whether  oral  or  written,  concerning  facts 
existing  when  the  policy  is  signed,  are  false,  it  never  has  any  exis- 
tence as  a  contract,  unless  it  contains  in  itself  terms  which  expressly 

8  Part  of  the  opinion  is  omitted. 


204  CONSENT   OF    PARTIES REPRESENTATIONS   AND    WARRANTIES 

or  by  necessary  implication  waive  or  supersede  the  previous  represen- 
tations. If  the  representations  are  positive  and  not  of  mere  opinion 
or  belief,  it  matters  not  whether  they  are  made  at  or  before  the  time 
of  the  execution  of  the  policy,  nor  whether  they  are  expressed  in  the 
present  or  the  future  tense,  if  they  relate  to  what  the  state  of  facts 
is  or  will  be  when  the  policy  is  executed  and  the  risk  of  the  under- 
writer begins.  If  the  facts  are  then  materially  different  from  the  rep- 
resentations, the  whole  foundation  of  the  contract  fails,  the  risk  does 
not  attach,  the  policy  never  becomes  a  contract  between  the  parties. 
Representations  of  facts  existing  at  the  time  of  the  execution  of  the 
policy  need  not  be  inserted  in  it ;  for  they  are  not  necessary  parts  of 
it,  but,  as  is  sometimes  said,  collateral  to  it.  They  are  its  foundation ; 
and  if  the  foundation  does  not  exist,  the  superstructure  does  not  arise. 
Falsehood  in  such  representations  is  not  shown  to  vary  or  add  to  the 
contract,  or  to  terminate  a  contract  which  has  once  been  made;  but 
to  show  that  no  contract  has  ever  existed. 

The  word  "representations"  has  not  always  been  confined  in  use  to 
representations  of  facts  existing  at  the  time  of  making  the  policy ; 
but  has  been  sometimes  extended  to  statements  made  by  the  assured 
concerning  w^hat  is  to  happen  during  the  term  of  the  insurance;  in 
other  words,  not  to  the  present,  but  to  the  future;  not  to  facts  which 
any  human  being  knows  or  can  know,  but  to  matters  of  expectation  or 
belief,  or  of  promise  and  contract.  Such  statements  (when  not  ex- 
pressed in  the  form  of  a  distinct  and  explicit  warranty  wdiich  must  be 
strictly  complied  with)  are  sometimes  called  "promissory  representa- 
tions," to  distinguish  them  from  those  relating  to  facts,  or  "affirma- 
tive representations."  And  these  words  express  the  distinction  ;  the 
one  is  an  affirmation  of  a  fact  existing  when  the  contract  begins ; 
the  other  is  a  promise,  to  be  performed  after  the  contract  has  come 
into  existence.  Falsehood  in  the  affirmation  prevents  the  contract 
from  ever  having  any  life;  breach  of  the  promise  could  only  bring 
it  to  a  premature  end.  A  promissory  representation  may  be  inserted 
in  the  policy  itself ;  or  it  may  be  in  the  form  of  a  written  application 
for  insurance,  referred  to  in  the  policy  in  such  a  manner  as  to  make 
it  in  law  a  part  thereof ;  and  in  either  case  the  whole  instrument  must 
be  construed  together.  But  this  instrument  is  the  expression,  and  the 
only  evidence,  of  the  duties,  obligations  and  promises  to  be  performed 
by  each  party  while  the  insurance  continues.  To  make  the  continu- 
ance or  termination  of  a  written  contract,  which  has  once  taken  effect, 
dependent  on  the  performance  or  breach  of  an  earlier  oral  agreement, 
would  be  to  violate  a  fundamental  rule  of  evidence.  A  representation 
that  a  fact  now  exists  may  be  either  oral  or  written;  for  if  it  does 
not  exist,  there  is  nothing  to  which  the  contract  can  apply.  But  an 
oral  representation  as  to  a  future  fact,  honestly  made,  can  have  no 
effect ;  for  if  it  is  a  mere  statement  of  an  expectation,  subsequent  dis- 
appointment will  not  prove  that  it  was  untrue;   and  if  it  is  a  promise 


CONSTRUCTION  OF  REPRESENTATIONS  205 

that  a  certain  state  of  facts  shall  exist  or  continue  during  the  term  of 
the  policy,  it  ought  to  be  embodied  in  the  written  contract. 

In  the  cases  now  before  us,  there  was  no  representation  that  the 
house  was  already  occupied,  and  no  representation  or  agreement  that 
it  should  be  occupied  the  instant  the  policies  took  effect.  The  plaintiff's 
statement  was  that  "the  house  would  be  occupied ;  that  he  had  a  man 
in  view  who  was  going  to  occupy  it."  There  is  nothing  to  show  that 
this  statement  was  not  made  in  the  most  perfect  good  faith.  Giving 
it  the  strongest  possible  interpretation  against  the  plaintiff,  it  was  a 
promise  that  the  house  should  be  occupied  within  a  reasonable  time, 
and  the  policies  attached  as  soon  as  they  were  made  and  continued  in 
force  until  such  reasonable  time  had  elapsed.  The  policies,  having  once 
taken  effect,  cannot  be  terminated  or  avoided,  in  the  absence  of  fraud, 
by  the  subsequent  breach  of  an  oral  agreement  made  before  they  were 
executed.     *     *     *     Exceptions  overruled. 


III.  Construction  of  Representations  ^ 


MOULOR  v.  AMERICAN  LIFE  INS.  CO. 

(Supreme  Court  of  United  States,  1884.     Ill  U.  S.  335,  4   Sup.  Ct.  466,  28 

L.  Ed.  447.) 

In  Error  to  the  Circuit  Court  of  the  United  States  for  the  Eastern 
District  of  Pennsylvania. 

Harlan,  Justice.-  This  is  an  action  upon  a  policy  of  insurance  is- 
sued by  the  American  Life  Insurance  Company  of  Philadelphia.  By 
Its  terms  the  amount  insured — ^$10.000 — is  payable  to  Emilie  Moulor, 
the  plaintiff  in  error,  her  executors,  administrators,  and  assigns,  with- 
in 60  days  after  due  notice  and  satisfactory  proof  of  interest  and  of 
the  death  of  her  husband,  the  insured,  certain  indebtedness  to  the  com- 
pany being  first  deducted.  Upon  the  first  trial  there  was  a  verdict 
for  the  plaintiff,  which  was  set  aside  and  a  new  trial  awarded.  At  the 
next  trial  the  jury  were  peremptorily  instructed  to  find  for  the  com- 
pany, and  judgment  was  accordingly  entered  in  its  behalf.  Upon  writ 
of  error  to  this  court  that  judgment  was  reversed  upon  the  ground  that, 
as  to  certain  issues  arising  out  of  the  evidence,  the  case  should  have  been 
submitted  to  the  jury.  Aloulor  v.  Ins.  Co.,  101  U.  S.  708,  25  L.  Ed. 
1077.  At  the  last  trial  there  was  a  verdict  and  judgment  for  the  de- 
fendant.    *     *     * 

7  For  discussion  of  principles,  see  Vance  ou  Insurance,  §§  102,  103. 

8  Part  of  the  opinion  is  omitted. 


20G  CONSENT   OF    PARTIES REPRESENTATIONS   AND    WARRANTIES 

The  seventh  question  in  the  appHcation  for  insurance  required  the 
insured  to  answer  yes  or  no,  as  to  whether  he  had  ever  been  afflicted 
with  any  of  the  following  diseases :  Insanity,  gout,  rheumatism,  palsy, 
scrofula,  convulsions,  dropsy,  small-pox,  yellow-fever,  fistula,  rupture, 
asthma,  spitting  of  blood,  consumption,  and  diseases  of  the  lungs, 
throat,  heart,  and  urinary  organs.  As  to  each  the  answer  of  the  in- 
sured was,  no. 

The  tenth  question  was :  "Has  the  party's  father,  mother,  brothers, 
or  sisters  been  afflicted  with  consumption  or  any  other  serious  family 
disease,  such  as  scrofula,  insanity,  etc.?"  The  answer  was,  "No,  not 
since  childhood." 

The  fourteenth  question  was:  "Is  there  any  circumstance  which 
renders  an  insurance  on  his  life  more  than  usually  hazardous,  such  as 
place  of  residence,  occupation,  physical  condition,  family  history,  he- 
reditary predispositions,  constitutional  infirmity,  or  other  known  cause, 
or  any  other  circumstance  or  information  with  which  the  company 
ought  to  be  made  acquainted?"     The  answer  was,  "No." 

To  the  sixteenth  question,  "Has  the  applicant  reviewed  the  answers 
to  the  foregoing  questions,  and  is  it  clearly  understood  and  agreed 
that  any  untrue  or  fraudulent  answers,  or  any  suppression  of  facts  in 
regard  to  health,  habits,  or  circumstances,  or  neglect  to  pay  the  pre- 
mkim  on  or  before  the  time  it  becomes  due,  will,  according  to  the  terms 
of  the  policy,  vitiate  the  same  and  forfeit  all  payments  made  there- 
on?" the  answer  was,  "Yes." 

At  the  close  of  the  series  of  questions,  19  in  number,  propounded  to 
and  answered  by  the  applicant,  are  the  following  paragraphs: 

"It  is  hereby  declared  and  warranted  that  the  above  are  fair  and 
true  answers  to  the  foregoing  questions;  and  it  is  acknowledged 
and  agreed  by  the  undersigned  that  this  application  shall  form  a 
part  of  the  contract  of  insurance,  and  that  if  there  be,  in  any  of 
the  answers  herein  made,  any  untrue  or  evasive  statements,  or  any 
misrepresentation  or  concealment  of  facts,  then  any  policy  granted 
upon  this  application  shall  be  null  and  void,  and  all  payments  made 
[hereon   shall  be   forfeited  to  the  company. 

"And  it  is  further  agreed  that  if  at  any  time  hereafter  the  com- 
pany shall  discover  that  any  of  said  answers  or  statements  are  un- 
true or  evasive,  or  that  there  has  been  any  concealment  of  facts, 
then,  and  in  every  such  case,  the  company  may  refuse  to  receive 
further  premiums  on  any  policy  so  granted  upon  this  application, 
and   said  policy  shall  be   null  and  void,   and  payments   forfeited  as 

aforesaid." 

The  policy  recites  that  the  agreement  of  the  company  to  pay  the 
sum  specified  is  "in  consideration  of  the  representations  made  to 
them  in  the  application,"  and  of  the  payment  of  the  premium  at 
the  time  specified;  further,  "it  is  hereby  declared  and  agreed  that 
if  the  representations  and  answers  made  to  this  company,  on  the 
application  for  this  policy,  upon  the  full  faith  of  which  it  is  issued,. 


CONSTRUCTION    OF    REPRESENTATIONS  207 

shall  be  found  to  be  untrue  in  any  respect,  or  that  there  has  been 
any  conceahnent  of  facts,  then  and  in  every  such  case  the  policy 
shall  be  null  and  void." 

The  main  defense  was  that  the  insured  had  been  afflicted  with 
scrofula,  asthma,  and  consumption  prior  to  the  making  of  his  ap- 
plication, and  that,  in  view  of  his  statement  that  he  had  never  been 
so  afflicted,  the  policy  "was,  by  its  terms,  null  and  void.  There  was, 
undoubtedly,  evidence  tending  to  show  that  the  insured  had  been 
afflicted  with  those  diseases,  or  some  of  them,  prior  to  his  applica- 
tion ;  but  there  was  also  evidence  tending  to  show  not  only  that 
he  was  then  in  sound  health,  but  that,  at  the  time  of  his  application, 
he  did  not  know  or  believe  that  he  had  ever  been  afflicted  with  any 
of  them  in  a  sensible,  appreciable  form.     *     ''''     * 

Assuming — as  in  view  of  the  finding  of  the  jury  we  must  assume — 
that  the  insured  was  at  the  date  of  his  application,  or  had  been  prior 
thereto,  afflicted  with  the  disease  of  scrofula,  asthma,  or  consump- 
tion, the  question  arises  whether  the  beneficiary  may  not  recover, 
unless  it  appears  that  he  had  knowledge,  or  some  reason  to  believe, 
when  he  applied  for  insurance,  that  he  was  or  had  been  afflicted 
with  either  of  those  diseases.  The  circuit  court  plainly  proceeded 
upon  the  ground  that  his  knowledge  or  belief  as  to  having  been  af- 
flicted with  the  diseases  specified,  or  of  some  one  of  them,  was  not 
an  essential  element  in  the  contract ;  in  other  words,  if  the  assured 
ever  had,  in  fact,  any  one  of  the  diseases  mentioned  in  his  answer 
to  the  seventh  question,  there  could  be  no  recovery,  although  the 
jury  should  find  from  the  evidence  that  he  acted  in  perfect  good 
faith,  and  had  no  reason  to  suspect,  much  less  to  believe  or  know, 
that  he  had  ever  been  so  afflicted.  If,  upon  a  reasonable  interpre- 
tation, such  was  the  contract,  the  duty  of  the  court  is  to  enforce  it 
according  to  its  terms ;  for  the  law  does  not  forbid  parties  to  a 
contract  for  life  insurance  to  stipulate  that  its  validity  shall  depend 
upon  conditions  or  contingencies  such  as  the  court  below  decided 
were  embodied  in  the  pohcv  in  suit.  The  contracts  involved  in 
Tefifries  v.  Life  Ins.  Co.,  22  Wall.  47,  23  L.  Ed.  833,  and  .^tna  Life 
Ins.  Co.  V.  France,  etc.,  91  U.  S.  510,  23  L.  Ed.  401,  were  held  to 
be  of  that  kind. 

But  unless  clearly  demanded  by  the  established  rules  governing 
the  construction  of  written  agreements,  such  an  interpretation  ought 
to  be  avoided.  In  the  absence  of  explicit,  unequivocal  stipulations 
requiring  such  an  interpretation,  it  should  not  be  inferred  that  a 
person  took  a  life  policy  with  the  distinct  understanding  that  it 
should  be  void,  and  all  premiums  paid  thereon  forfeited,  if  at  any 
time  in  the  past,  however  remote,  he  was,  whether  conscious  of  the 
fact  or  not,  afflicted  with  some  one  of  the  diseases  mentioned  in 
the  question  to  which  he  was  required  to  make  a  categorical  answer. 
If  those  who  organize  and  control  life  insurance  companies  wish  to 
exact   from  the  applicant,  as   a  condition  precedent  to  a  valid  con- 


208  CONSENT   OF    PARTIES REPRESENTATIONS  AND    WARRANTIES 

tract,  a  guaranty  against  the  existence  of  diseases,  of  the  presence  of 
which  in  his  system  he  has  and  can  have  no  knowledge,  and  which 
even  skillful  physicians  are  often  unable,  after  the  most  careful  ex- 
amination, to  detect,  the  terms  of  the  contract  to  that  effect  must 
be  so  clear  as  to  exclude  any  other  conclusion.     *     *     * 

These  rules  of  interpretation,  equally  applicable  in  cases  of  life 
insurance,  forbid  the  conclusion  that  the  answers  to  the  questions 
in  the  application  constituted  warranties,  to  be  literally  and  exactly 
fulfilled,  as  distinguished  from  representations  which  must  be  sub- 
stantially performed  in  all  matters  material  to  the  risk;  that  is,  in 
matters  which  are  of  the  essence  of  the  contract. 

We  have   seen  that   the  application   contains   a   stipulation  that  it 
shall  form  a  part  of  the  contract  of  insurance ;    also,  that  the  policy 
purports  to  have  been  issued  upon  the   faith  of  the  representations 
and  answers  in  that  application.     Both  instruments,  therefore,   may 
be  examined  to  ascertain  whether  the  contract  furnishes  a  uniform, 
fixed  rule  of  interpretation,  and  what  was  the  intention  of  the  parties. 
Taken  together,  it  cannot  be  said  that  they  have  been  so  framed  as 
to  leave  no  room   for  construction.     The  mind  does  not  rest  firmly 
in  the  conviction  that  the  parties  stipulated  for  the  literal  truth  of 
every   statement   made  by  the  insured.     There   is,   to   say  the   least, 
ground   for   serious   doubt   as   to   wdiether  the   company   intended  to 
require,  and  the  insured  intended  to  promise,  an  exact,  literal   ful- 
fillment  of   all  the   declarations   embodied   in   the   application.      It   is 
true  that  the  word  "warranted"  is  in  the  application ;    and,  although 
a  contract  might  be   so  framed  as  to  impose  upon  the  insured  the 
obligations   of    a    strict   warranty,    without    introducing    into   it    that 
particular  word,  yet  it  is  a  fact,  not  without  some  significance,  that 
that   word   was   not  carried    forward   into   the   policy,   the   terms   of 
which  control,   when  there  is  a  conflict  between  its   provisions   and 
those  of  the  application.     The  policy  upon  its  face  characterizes  the 
statements  of   the   insured   as   representations.     Thus,   we   have   one 
part   of    the   contract    apparently   stipulating    for   a   warranty,    while 
another  part  describes  the  statements  of  the  assured  as  representa- 
tions.    The  doubt,  as  to  the  intention  of  the  parties,  must,  according 
to   the  settled  doctrines  of  the  law  of   insurance,   recognized   in   all 
the  adjudged   cases,  be   resolved   against  the   party   whose   language 
it  becomes  necessary  to  interpret.     The  construction  must,  therefore, 
prevail   which   protects   the    insured    against    the    obligations    arising 
from  a  strict  warranty. 

But  it  is  contended  that  if  the  answers  of  the  assured  are  to  be 
deemed  representations  only,  the  policy  was,  nevertheless,  for- 
feited, if  those  representations  were  untrue  in  respect  of  any  matters 
material  to  the  risk.  The  argument  is  that  if  the  insured  was,  at 
the  time  of  his  application,  or  had  been  at  any  former  period  of  his 
life,  seriously  or  in  an  appreciable  sense,  afflicted  with  scrofula, 
asthma,   or   consumption,   his   answer,   without   qualification,   that   he 


CONSTRUCTION  OF  REPRESENTATIONS  209 

had  never  been  so  afflicted,  being  untrue,  avoided  the  policy,  without 
reference  to  any  knowledge  or  belief  he  had  upon  the  subject.  The 
soundness  of  this  proposition  could  not  be  disputed  if,  as  assumed, 
the  knowledge  or  good  faith  of  the  insured,  as  to  the  existence  of 
isuch  diseases,  was,  under  the  terms  of  the  contract  in  suit,  of  no  conse- 
quence whatever  in  determining  the  liability  of  the  company.  But 
is  that  assumption  authorized  by  a  proper  interpretation  of  the  two 
instruments  constituting  the  contract?     We  think  not. 

Looking  into  the  application,  upon  the  faith  of  which  the  policy 
was  issued  and  accepted,  we  find  much  justifying  the  conclusion 
that  the  company  did  not  require  the  insured  to  do  more,  when 
applying  for  insurance,  than  observe  the  utmost  good  faith,  and  deal 
fairly  and  honestly  with  it,  in  respect  of  all  material  facts  about 
which  inquiry  is  made,  and  as  to  which  he  has  or  should  be  pre- 
sumed to  have  knowledge  or  information.  The  applicant  was  re- 
quired to  answer  yes  or  no  as  to  whether  he  had  been  afflicted  with 
certain  diseases.  In  respect  of  some  of  those  diseases,  particularly 
consumption,  and  diseases  of  the  lungs,  heart,  and  other  internal 
organs,  common  experience  informs  us  that  an  individual  may  have 
them  in  active  form,  without,  at  the  time,  being  conscious  of  the 
fact,  and  beyond  the  power  of  any  one,  however  learned  or  skillful, 
to  discover.  Did  the  company  expect,  when  requiring  categorical 
answers  as  to  the  existence  of  diseases  of  that  character,  that  the 
applicant  should  answer  with  absolute  certainty  about  matters  of 
which  certainty  could  not  possibly  be  predicated?  Did  it  intend  to 
put  upon  him  the  responsibility  of  knowing  that  which,  perhaps,  no 
one,  however  thoroughly  trained  in  the  study  of  human  diseases, 
could  possibly  ascertain?  We  shall  be  aided  in  the  solution  of  these 
inquiries  ty  an  examination  of  other  questions  propounded  to  the 
applicauL.  In  that  way  we  may  ascertain  what  was  in  the  minds  of 
the  parties. 

Beyond  doubt  the  phrase  "other  known  cause,"  in  the  fourteenth 
question,  serves  the  double  purpose  of  interpreting  and  qualifying 
all  that  precedes  it  in  the  same  clause  or  sentence.  For  instance, 
the  applicant  was  not  required  to  state  all  the  circumstances  within 
his  recollection  of  his  family  history,  but  those  only  which  rendered 
the  proposed  insurance  more  than  usually  hazardous,  and  of  which 
he  had  personal  knowledge  or  of  which  he  had  information  fairly 
justifying  a  belief  of  their  existence.  If  he  omitted  to  state  circum- 
stances in  his  "family  history"  of  which  he  had  no  knowledge,  nor 
any  information  deserving  attention,  that  omission  would  not  avoid 
the  policy,  although  it  subsequently  appeared  that  those  circumstances, 
if  known  to  the  company,  would  have  shown  that  the  proposed  in- 
surance was  more  than  usually  hazardous.  Apart  from  other  ques- 
tions or  clauses  in  the  application,  the  tenth  question  would  indicate 
that  an  incorrect  or  untrue  answer  as  to  whether  the  applicant's 
CooLET  Ins. — 14 


210  CONSENT   OF    PARTIES REPRESENTATIONS   AND    WARRANTIES 

"father,  mother,  brothers,  or  sisters  had  been  affected  with  con- 
sumption, or  any  other  serious  family  disease,  such  as  scrofula,  in- 
sanity, etc.,"  would  absolve  the  company  from  al'  liability.  Yet,  in 
the  fourteenth  question,  the  insured,  being  asked  as  to  his  family 
history  and  as  to  "hereditary  predispositions" — an  inquiry  substan- 
tially covering  some  of  the  specific  matters  referred  to  in  the  tenth 
question — was,  as  we  have  seen,  only  required  to  state  such  cir- 
cumstances as  were  known  to  him,  or  of  which  he  had  information, 
and  which  rendered  an  insurance  upon  his  life  more  than  usually 
hazardous.  So,  in  reference  to  that  part  of  the  fourteenth  question 
relating  to  the  then  physical  condition  of  the  applicant.  Suppose  at 
the  time  of  his  application  he  had  a  disease  of  the  lungs  or  heart, 
but  was  entirely  unaware  that  he  was  so  affected.  In  such  a  case 
he  would  have  met  all  the  requirements  of  that  particular  question, 
and  acted  in  the  utmost  good  faith,  by  answering  no,  thereby  im- 
plying that  he  was  aware  of  no  circumstance  in  his  then  physical  con- 
dition which  rendered  an  insurance  upon  his  life  more  than  usually 
hazardous.  And  yet,  according  to  the  contention  of  the  company,  if 
he  had,  at  any  former  period  of  his  life,  been  afflicted  with  a  disease 
of  the  heart  or  lungs,  his  positive  answer  to  the  seventh  question, 
that  he  had  not  been  so  afflicted,  was  fatal  to  the  contract ;  this, 
although  the  applicant  had  no  knowledge  or  information  of  the  ex- 
istence at  any  time  of  such  a  disease  in  his  system.  So,  also,  in 
reference  to  the  inquiry  in  the  fourteenth  question  as  to  any  "con- 
stitutional infirmity"  of  the  insured.  If,  in  answering  that  question, 
he  was  required  to  disclose  only  such  constitutional  infirmities  as 
were  then  known  to  him,  or  which  he  had  reason  to  believe  then 
existed,  it  would  be  unreasonable  to  infer  that  he  was  expected,  in 
answer  to  a  prior  question,  in  the  same  policy,  to  guarantee  absolutely, 
and  as  a  condition  precedent  to  any  binding  contract,  that  he  had 
never,  at  any  time,  been  afflicted  with  diseases  of  which,  perhaps, 
he  never  had  and  could  not  have  any  knowledge  whatever. 

The  entire  argument  in  behalf  of  the  company  proceeds  upon  a 
too-literal  interpretation  of  those  clauses  in  the  policy  and  applica- 
tion which  declare  the  contract  null  and  void  if  the  answers  of  the 
insured  to  the  questions  propounded  to  him  were,  in  any  respect, 
untrue.  What  was  meant  by  "true"  and  "untrue"  answers?  In  one 
sense,  that  only  is  true  which  is  conformable  to  the  actual  state  of 
things.  In  that  sense,  a  statement  is  untrue  which  does  not  express 
things  exactly  as  they  are.  But  in  another  and  broader  sense  the 
word  "true"  is  often  used  as  a  synonym  of  honest,  sincere,  not  fraud- 
ulent. Looking  at  all  the  clauses  of  the  application,  in  connection 
with  the  policy,  it  is  reasonably  clear — certainly  the  contrary  cannot 
be  confidently  asserted — that  what  the  company  required  of  the  ap- 
plicant, as  a  condition  precedent  to  any  binding  contract,  was,  that 
he  would  observe  the  utmost  good  faith  towards  it,  and  make  full, 
direct,  and  honest  answers  to  all  questions,  without  evasion  or  fraud, 


CONSTRUCTION    OF    REPRESENTATIONS  211 

and  without  suppression,  misrepresentation,  or  concealment  of  facts 
with  which  the  company  ought  to  be  made  acquainted  ;  and  that  by 
so  doing,  and  only  by  so  doing,  would  he  be  deemed  to  have  made 
"fair  and  true  answers." 

If  it  be  said  that  an  individual  could  not  be  afflicted  with  the  dis- 
eases specified  in  the  application,  without  being  cognizant  of  the  fact, 
the  answer  is  that  the  jury  would,  in  that  case,  have  no  serious  diffi- 
culty in  finding  that  he  had  failed  to  communicate  to  the  company 
what  he  knew  or  should  have  known  was  material  to  the  risk,  and 
that,  consequently,  for  the  want  of  "fair  and  true  answers,"  the  pol- 
icy was,  by  its  terms,  null  and  void.  But,  whether  a  disease  is  of  such 
a  character  that  its  existence  must  have  been  known  to  the  individual 
afflicted  with  it.  and  therefore  whether  an  answer  denying  its  existence 
was  or  not  a  fair  and  true  answer,  is  a  matter  which  should  have 
been  submitted  to  the  jury.  It  was  an  erroneous  construction  of  the 
contract  to  hold,  as  the  court  below  did,  that  the  company  was  re- 
lieved from  liability  if  it  appeared  that  the  insured  was,  in  fact,  af- 
flicted with  the  diseases,  or  any  of  them,  mentioned  in  the  charge  of 
the  court.  The  jury  should  have  been  instructed,  so  far  as  the  mat- 
ters here  under  examination  are  concerned,  that  the  plaintiff  was  not 
precluded  from  recovering  on  the  policy,  unless  it  appeared  from  all 
the  circumstances,  including  the  nature  of  the  diseases  with  which  the 
insured  was  alleged  to  have  been  afflicted,  that  he  knew,  or  had  rea- 
son to  believe,  at  the  time  of  his  application,  that  he  was  or  had 
been  so  afflicted. 

It  results  from  what  has  been  said  that  the  judgment  must  be  re- 
versed, with  directions  to  set  aside  the  verdict,  and  for  further  pro- 
ceedings consistent  with  this  opinion.     It  is  so  ordered. 


IMUTUAL  LIFE  IXS.  CO.  OF  XEW  YORK  v.  MULLEN. 

(Court  of  Appeals  of  Maryland.  1908.     107  Md.  457,  69  Atl.  385.) 

Action  by  Thomas  M.  ]\Iullen  and  another  as  executors  of  Catherine 
T.  Mullen  against  the  Alutual  Life  Insurance  Company  of  Xew  York. 
From  a  judgment  for  plaintiffs,  defendant  appeals. 

WoRTHiNGTON,  j,9  *  *  *  Several  important  questions  concern- 
ing the  law  of  life  insurance  are  involved  in  the  appeal  which  we 
will  now  proceed  to  consider.  Before  the  Act  of  1894,  p.  1059,  c.  662, 
it  was  always  a  matter  of  great  importance  in  considering  a  case  like 
this  to  determine  at  the  outset  whether  the  answers  and  statements 
of  the  applicant  as  contained  in  his  application  for  insurance  were 
warranties  or  mere  representations.  If  the  former,  the  policy  was 
avoided,  unless  such  statements  and  answers  were  literally  true,  wheth- 

9  Part  of  the  opinion  is  omitted. 


212  CONSENT   OF    PARTIES REPRESENTATIONS   AND    WARRANTIES 

er  they  related  to  matters  material  to  the  risk  or  not.  ]\Ionahan  v. 
Ins.  Co.,  103  Md.  156,  63  Atl.  211,  5  L.  R.  A.  (N.  S.)  759;  Md.  Cas- 
ualty Co.  V.  Gehrmann,  96  Md.  648,  54  Atl.  678 ;  Bankers'  Life  Ins. 
Co.  V.  Miller,  100  Md.  1,  59  Atl.  116.  If  the  latter,  the  policy  was  not 
avoided,  unless  the  answers  and  statements  were  false  in  relation  to 
some  matters  material  to  the  risk.  Bankers'  Life  Ins.  Co.  v.  Miller, 
supra. 

By  the  aid  of  warranties,  and  the  innocent  mistakes  of  the  insured, 
it  often  happened  that  the  insurer  was  able  to  escape  liability  on  a 
ground  of  the  purest  technicality.  For  the  purpose  of  relaxing  the 
harsh  rule  of  the  common  law  which  required  warranties  to  be  liter- 
ally true  without  regard  to  their  materiality  to  the  risk,  the  Act  of  1894, 
p.  1059,  c.  662,  was  passed.  That  act,  which  is  a  literal  copy  of  the 
Pennsylvania  statute,  and  similar  to  the  statutes  of  some  other  states 
on  the  same  subject,  is  as  follows:  "Whenever  the  application  for  a 
policy  of  life  insurance  contains  a  clause  of  warranty  of  the  truth  of 
the  answers  therein  contained,  no  misrepresentation  or  untrue  state- 
ment in  such  application  made  in  good  faith  by  the  applicant,  shall  ef- 
fect a  forfeiture,  or  be  a  ground  of  defense  in  any  suit  brought  upon 
any  policy  of  insurance  issued  upon  the  faith  of  such  application,  un- 
less such  misrepresentation  or  untrue  statement  relate  to  some  matter 
material  to  the  risk."    Code  Pub.  Gen.  Laws    1904,  art.  23,  §  196. 

In  construing  the  Pennsylvania  statute  which  as  we  have  said  is 
identical  with  our  own,  the  Supreme  Court  of  that  state  says :  "The 
meaning  of  this  language  is  perfectly  plain.  A  misrepresentation  or 
untrue  statement  in  an  application,  if  made  in  good  faith,  shall  not 
void  the  policy,  unless  it  relate  to  some  matter  material  to  the  risk.  If 
the  matter  is  not  material  to  the  risk,  and  the  statement  is  made  in 
good  faith,  although  it  is  untrue,  it  shall  not  avoid  the  policy."  March 
v.  Life  Ins.  Co.,  186  Pa.  641,  40  Atl.  1100.  65  Am.  St.  Rep.  887. 

In  other  words,  the  statute  was  passed  to  prevent  the  defeat  of  the 
ends  of  justice  by  mere  technicality.  It  is  remedial  in  character,  and 
should  be  given  such  liberal  and  reasonable  interpretation  as  will  in- 
sure judicial  investigation  in  the  ordinary  way  of  the  question  whether 
any  particular  statement  in  the  application  was  untrue,  and,  if  untrue, 
whether  it  was  material  to  the  risk.  If  the  statement  is  found  to  be 
untrue  and  material,  the  penalty  of  the  forfeiture  of  the  policy  will 
usually  follow  as  of  course,  whether  the  answer  be  made  in  good  faith 
or  in  bad  faith.  Penn  Mutual  v.  Savs.  Bank,  72  Fed.  413,  19  C.  C. 
A.  286,  38  L.  R.  A.  ZZ;  Id.,  73  Fed.  653,  19  C.  C.  A.  316,  38  L.  R. 
A.  70. 

As  the  application  in  this  case  contains  a  clause  of  warranty  of 
the  truth  of  the  answers  therein  contained,  and  as  the  appHcation  is 
referred  to  in,  and  made  a  part  of,  the  policy,  the  statute  by  its  very 
terms  is  applicable,  unless  other  circumstances  render  it  inapplicable. 
And  the  appellant  contends  that  this  act  is  not  applicable  to  the  case 
at  bar  for  two  reasons: 


CONSTRUCTION    OF    REPRESENTATIONS  213 

First.  Because  the  contract  of  insurance  expressly  provides  that  it 
shall  be  subject  to  the  charter  of  the  company,  and  of  the  laws  of  the 
state  of  New  York,  and,  as  there  is  no  evidence  of  a  similar  statute 
to  our  own  in  force  in  that  state,  this  court  will  presume  that  the  com- 
mon law  prevails  there,  and  that  consequently  this  contract  must  be 
construed  accordingly  to  the  rules  of  the  common  law.  Citing  Fick- 
lin's  Case,  74  Md.  172,  21  Atl.  680,  23  Atl.  197. 

Second.  Because  as  the  defendant  company  is  a  mutual  one,  as  is 
alleged,  the  contract  of  insurance  must  be  construed  in  accordance 
with  the  laws  of  the  state  where  the  company  was  created,  and  agree- 
ably to  its  charter,  in  order  to  preserve  the  scheme  of  mutuality  as 
was  done  in  Brashears'  Case,  89  Md.  624,  43  Atl.  866,  73  Am.  St. 
Rep.  244 

In  answer  to  the  first  reason  assigned,  we  refer  to  the  case  of  Keat- 
ley  v.  Travelers'  Ins.  Co.,  187  Pa.  197,  40  Atl.  808,  where  it  was  at- 
tempted to  evade  the  provisions  of  the  Pennsylvania  act  by  reciting  in 
the  policy  that  it  should  be  construed  by  the  laws  of  Connecticut. 
The  court  in  that  case  held  that  such  an  agreement  was  against  pub- 
lic policy,  and  that  the  contract  must  be  governed  by  the  laws  of 
Pennsylvania,  where  the  contract  was  made.  A  similar  rule  was 
adopted  in  Massachusetts  in  the  case  of  Dolan  v.  Mutual  Reserve, 
173  Mass.  197,  53  N.  E.  398,  the  court  saying:  "The  contract  was 
made  in  Massachusetts  through  its  agent  here,  and  the  policy  was 
delivered  and  paid  for  here.  It  is  therefore  governed  by  our  laws." 
The  same  rule  was  applied  in  Fidelity  Mutual  Life  Ass'n  v.  Jef- 
fords, 107  Fed.  402,  46  C.  C.  A.  377,  53  L.  R.  A.  193,  and  in  Fletcher 
v.  New  York  Life  Ins.  Co.  (C.  C.)  13  Fed.  526. 

In  a  suit  in  the  United  States  Circuit  Court,  Sixth  Circuit,  on  a 
policy  of  insurance  issued  by  a  Pennsylvania  corporation  to  a  person 
in  Maryland,  full  effect  is  given  to  the  Maryland  statute.  Fidelity 
Mutual'Life  Ass'n  v.  Miller,  92  Fed.  63,  34  C.  C.  A.  211.  See,  also, 
Equitable  Assur.  Co.  v.  Pettus,  140  U.  S.  226,  11  Sup.  Ct.  822,  35  L. 
Ed.  497. 

We  think,  therefore,  that  while  it  is  perfectly  true  that,  in  the  ab- 
sence of  proof  to  the  contrary,  the  common  law  is  presumed  to  be 
in  full  force,  and  to  be  the  same  as  the  common  law  of  the  forum, 
in  all  those  states  which  were  originally  colonies  of  England  (8  Cyc. 
387,  B);  and  although  in  Ficklin's  Case  supra,  this  court  gave  the 
benefit  of  the  remedial  statute  of  Pennsylvania,  before  its  adoption 
by  the  Legislature  of  this  state,  to  one  of  our  citizens  suing  in  the 
courts  of  this  state  upon  a  contract  made  here  by  a  Pennsylvania  cor- 
poration, yet  we  deem  it  against  public  policy  to  permit  a  contract 
of  insurance  made  here  since  the  passage  of  the  act  of  1894  with  a 
citizen  of  this  state,  to  be  governed  by  the  harsh  rules  of  the  com- 
mon law  which,  by  legal  presumption  merely,  is  supposed  to  obtain 
in  the  state  of  New  York  by  whose  laws  it  is  sought  to  have  this 
contract  construed. 


214  CONSENT   OF    PARTIES REPRESENTATIONS   AND    WARRANTIES 

When  a  corporation  undertakes  to  do  business  beyond  the  territorial 
limits  of  the  state  creating  it,  it  does  so  merely  by  comity,  and  the 
state  which  it  enters  for  the  purpose  of  transacting  business  therein 
has  the  power  to  require  such  corporation  to  carry  on  its  business 
there  subject  to  its  statutes,  and  this  court  will  not  allow  the  parties 
to  such  contracts  as  this,  by  any  stipulations  contained  therein  to  con- 
travene the  salutary  provisions  of  this  statute  intended  for  the  pro- 
tection of  our  own  citizens  against  common-law  warranties.  New 
York  Life  v.  Cravens,  178  U.  S.  389,  20  Sup.  Ct.  962,  44  L.  Ed.  1116. 

In  answer  to  the  second  reason  assigned,  we  have  only  to  say  that 
in  the  Brashears'  Case,  supra,  the  insurer  was  the  Royal  Arcanum,  a 
purely  mutual  benefit  association,  which  is  not  controlled  in  this  re- 
spect by  the  ordinary  rules  of  life  insurance  (Penn  JMutual  v.  Savings 
Bank,  72  Fed.  413,  19  C.  C.  A.  286,  38  L.  R.  A.  33;  Id.,  72>  Fed. 
653,  19  C.  C.  A.  316,  38  L.  R.  A.  70);  and,  besides,  in  this  case  we 
have  no  knowledge  that  the  appellant  is  in  fact  a  mutual  company, 
except  the  inference  to  be  drawn  from  the  single  word  "Mutual"  con- 
tained in  its  corporate  name.  We  think  it  is  perfectly  clear,  there- 
fore, that  as  the  first  premium  on  the  policy  was  paid  in  this  state  by 
a  citizen  of  this  state,  and  the  policy  delivered  here,  that  it  is  a  Mary- 
land contract,  and  to  be  governed  by  Maryland  laws. 

The  act  of  1894,  p.  1059,  c.  662,  being  applicable  to  this  case,  as  we 
think  it  clearly  is,  the  burden  of  proving  the  untruth  of  the  insured's 
statements  and  answers  in  his  application,  and  also,  if  untrue,  that 
they  relate  to  some  matters  material  to  the  risk,  or  that  they  were 
not  made  in  good  faith,  was  upon  the  defendant,  if  it  relied  upon 
fraud  or  misrepresentation  on  the  part  of  the  insured  as  a  defense  to 
the  action.  Brashears'  Case,  89  Md.  633,  43  Atl.  866,  73  Am.  St.  Rep. 
244;   May  on  Ins.  §  183.     *     *     *     Reversed.^" 


IV.  Warranties — In   General  ^^ 


GAINES  v.  FIDELITY  &  CASUALTY  CO.  OF  NEW  YORK. 

(Court  of  Appeals  of  New  York,  1907.     188  N.  Y.  411,  81  N.  E.  1G9,  11  Ann. 

Cas.  71.) 

Action  by  Lottie  Gaines  against  the  Fidelity  &  Casualty  Company 
of  New  York  on  an  accident  policy.  From  a  judgment  of  the  Ap- 
pellate Division  (111  App.  Div.  386,  97  N.  Y.  Supp.  836),  affirming  a 
judgment  for  defendant,  plaintiff  appeals. 

10  Compare  Lynch  v.  Prudential  Ins.  Co.  of  America,  post,  p.  ?26. 

11  For  discussion  of  principles,  see  Vance  on  Insurance,  §  104.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  p.  1120;    vol.  3,  p.  1926. 


WARRANTIES — IN    GENERAL 


215 


Gray,  J.^-  The  policy  in  question  insured  Ulysses  Gaines  against 
bodily  injury,  resulting  in  death,  in  the  sum  of  $2,000.  It  stated  that 
the  defendant  insured  him  "in  consideration  of  *  *  *  the  state- 
ments in  the  schedule  hereinafter  contained,  which  statements  the  in- 
sured makes  on  the  acceptance  of  this  policy  and  warrants  to  be  true." 
The  warranties  contained  in  the  schedule  of  the  policy  included  the 
statement,  in  answer  to  a  question  as  to  the  "relationship"  of  this 
plaintitT,  whom  the  insured  had  named  as  the  payee,  that  she  was  his 
wife.  The  assured  was  killed  by  a  pistol  shot,  fired  by  another,  and 
this  action  by  the  plaintiff,  as  the  beneficiary  named  in  the  policy,  was 
defended  upon  the  ground,  among  others,  that  there  had  been  a  breach 
of  the  warranty,  in  that  she  was  not  the  wife  of  the  assured.  The 
result  of  the  trial  was  that  the  jury  found  a  verdict  in  favor  of  the 
defendant  upon  this  question  of  fact  and  the  unanimous  affirmance  of 
the  judgment  thereupon  is  conclusive. 

The  question  of  law,  which  has  survived,  is  raised  by  exceptions 
taken  by  the  plaintiff  to  the  charge  of  the  trial  court  that  she  could 
not  recover  unless  she  was,  at  the  time  of  the  insurance,  the  wife  of 
the  person  assured.  As  the  question  of  fact  was  submitted  to  the 
jurors  by  the  trial  judge,  they  were  to  determine  whether  there  was 
any  agreement  between  the  assured  and  the  plaintiff  to  enter  into  the 
marital  relationship,  and,  if  there  was,  whether,  the  plaintiff's  prior 
marriage  to  another  having  been  conceded,  she  was  "capable  of  en- 
tering into  that  relationship";  that  is,  "had  she  married  the  assured 
in  good  faith  believing  her  husband  to  be  dead." 

The  question  of  the  avoidance  of  the  contract,  under  the  clause  of 
the  policy  relating  to  injuries  intentionally  inflicted  by  another  upon 
the  insured,  was  within  the  issues  of  the  case;  but  the  instructions 
to  the  jurors  required  them,  if  they  decided  for  the  defendant  upon 
that  defense,  to  return  a  verdict  for  the  plaintiff  for  $16,  the  amount 
■of  the  premium,  according  to  the  terms  of  the  policy. 

The  argument  of  the  appellant,  in  substance  and  effect,  is  that  the 
representation  of  the  assured  that  Lottie  Gaines  was  his  wife  was  not 
material,  and  should  be  considered  as  matter  of  description,  and  not 
of  warranty.  This  was,  however,  a  distinctly  expressed  warranty,  the 
truth  of  which  was  a  condition  of  liability  and  was  of  the  basis  of 
the  contract  itself.  The  eft'ect  of  making  the  statement  a  part  of  the 
policy  and  of  warranting  it  to  be  true  was,  in  law,  to  induce  the  de- 
fendant's agreement  to  insure,  and  the  statement  became  material.  It 
is  a  general  rule,  and  one  which  the  decisions  of  this  court  have  as- 
serted, that  the  materiality  of  the  fact  stated  by  the  assured  is  of  no 
consequence,  if  the  contract  be  that  the  matter  is  as  represented,  and 
that,  unless  it  prove  so,  whether  from  fraud,  mistake,  negligence,  or 
other  cause,  not  proceeding  from  the  insurer,  or  the  intervention  of 
the  law,  or  the  act  of  God,  the  assured  can  have  no  claim.     May  on 

12  Part  of  the  opinion  is  omitted. 


216  CONSENT   OF    PARTIES REPRESENTATIONS  AND    WARRANTIES 

Insurance,  §  156;  Foot  v.  ^tna  Life  Ins.  Co.,  61  N.  Y.  571,  577; 
Cushman  v.U.  S.  Life  Ins.  Co.,  63  N.  Y.  404,  409;  Donley  v.  Glens 
Falls  Life  Ins.  Co.,  184  N.  Y.  107,  76  N.  E.  914,  6  Ann.  Cas.  81. 

The  author  of  the  text-book  cited  well  observes :  "One  of  the  very 
objects  of  the  warranty  is  to  preclude  all  controversy  about  the  ma- 
teriality or  immateriality  of  the  statement."  The  parties  to  this  con- 
tract had  the  right  to  make  any  statements  of  fact  material  thereto 
and  conditions  precedent  to  any  liability  thereupon,  all  things  being 
equal  at  the  time  in  their  attitude  to  each  other,  and  if  they  proved 
false  the  contract  was  avoided.  The  insurer  was  entitled  to  know  the 
actual  relationship,  which  the  person,  for  whom  the  assured  desired 
the  benefit  of  the  insurance  contract,  sustained  to  him,  for  it  bore 
upon  the  risk  which  it  was  to  assume.  The  inquiry  related  to  the  risk, 
the  statement  in  the  answer  was  made  a  warranty  to  be  contained  in 
the  policy,  and,  it  having  been  determined  that  the  statement  was  un- 
true, the  right  to  recover  upon  the  contract  was  forfeited.  *  *  * 
Judgment  affirmed.  ^^ 


CHAMBERS  v.  NORTHWESTERN  MUT.  LIFE  INS.  CO. 

(Supreme  Court  of  Minnesota,   1896.     64  Minn.  495,  67  N.  W.  367,  58  Am. 

St.  Rep.  549.) 

Action  by  George  W.  Chambers,  administrator,  against  the  North- 
western Mutual  Life  Insurance  Company.  There  was  a  judgment  for 
plaintiff,  and  from  an  order  denying  a  new  trial  defendant  appeals. 

Mitchell,  J.^''  This  was  an  action  on  a  policy  of  insurance  on  the 
life  of  plaintiff's  intestate.  The  complaint  alleged  the  issuing  of  the 
policy,  the  death  of  the  insured,  the  furnishing  of  proofs  of  loss,  and 
the  refusal  of  the  defendant  to  pay ;  also,  generally,  that  the  insured 
and  the  plaintiff  had  each  fulfilled  all  the  conditions  of  the  policy.  The 
policy,  which  was  attached  to  the  complaint,  provided  that  the  in- 
sured's application  was  made  a  part  of  the  policy;  also,  that  "if  any 
fraudulent  representation  or  statement  shall  be  made  in  the  applica- 
tion, *  *  *  then  and  in  every  such  case  the  policy  shall  be  null 
and  void."  The  application,  which  was  introduced  in  evidence,  con- 
tained numerous  questions  to  the  applicant  and  his  answers  thereto. 
All  of  these  related  to  then  existing  or  past  facts.  It  also  contained 
an  agreement,  signed  by  the  applicant,  that  all  the  statements  and  an- 
swers written  on  the  application,  including  those  made  to  the  medical 
examiner,  are  warranted  to  be  true,  and  to  be  full  and  fair  answers 
to  the  questions,  without  evasion  or  concealment,  and  are  offered  to 
the  company  as  a  consideration  for  the  contract  of  insurance. 

Defendant,  in  its  answer,  admitted  the  issuing  of  the  policy,  the 

18  Compare  Vivar  v.  Supreme  Lodge,  post,  p.  223. 
14  Part  of  the  opinion  is  omitted. 


WARRANTIES — IN   GENERAL  217 

death  of  the  insured,  the  furnishing  of  proofs  of  death,  and  a  refusal 
on  its  part  to  pay,  but,  except  as  thus  admitted,  denied  all  the  allega- 
tions of  the  complaint.  It  then  alleged  that  the  answers  to  the  fol- 
lowing questions  in  the  application  were  false  and  untrue :  "Have 
you  ever  had  disease  of  the  heart?  Ans.  No.  Do  you  use  malt  or 
spirituous  beverages?  Ans.  No.  Have  you  always  been  temperate? 
Ans.  Yes.  Is  there  anything,  or  has  there  ever  been  anything,  in  your 
physical  condition,  family  or  personal  history,  or  habits,  tending  to 
shorten  your  life,  which  is  not  distinctly  set  forth  above?  Ans.  No." 
And  that  by  reason  of  said  false  and  fraudulent  representations,  and 

each  of  them,  said  policy  or  contract  of  insurance  is  null  and  void. 
*     *     * 

Was  the  burden  on  the  plaintiff  to  allege  and  prove  the  truth  of 
the  answers  to  the  questions  contained  in  the  application,  or  was  it 
upon  the  defendant  to  allege  and  prove  their  falsity?  Defendant's 
contention  is  that  because,  if  any  of  these  answers  were  false,  the 
policy  would  be  void  ab  initio,  therefore  they  were  conditions  preced- 
ent, and  hence,  according  to  a  familar  rule,  the  burden  was  on  the 
plaintiff  to  allege  and  prove  that  they  were  true.  The  law  is  so  well 
settled  otherwise  that  it  would  hardly  seem  to  require  discussion. 

For  the  purposes  of  this  case  it  is  immaterial  whether  these  an- 
swers are  to  be  deemed  warranties  or  mere  representations,  for  the 
rule  of  pleading  and  proof  would  be  the  same  in  either  case.  Hence 
we  shall  assume,  most  favorably  to  the  defendant,  that  the  answers 
are  warranties.  A  condition  precedent,  as  known  in  the  law,  is  one 
which  is  to  be  performed  before  the  agreement  of  the  parties  becomes 
operative.  A  condition  precedent  calls  for  the  performance  of  some 
act  or  the  happening  of  some  event  after  the  contract  is  entered  into. 
and  upon  the  performance  or  happening  of  which  its  obligation  is 
made  to  depend.  In  the  case  of  a  mere  warranty,  the  contract  takes 
effect  and  becomes  operative  immediately.  It  is  true  that,  where  a 
policy  of  insurance  so  provides,  if  there  is  a  breach  of  a  warranty, 
the  policy  is  void  ab  initio.  But  this  does  not  change  the  warranty 
into  a  condition  precedent,  as  understood  in  the  law.  It  lacks  the  es- 
sential element  of  a  condition  precedent,  in  that  it  contains  no  stipu- 
lation that  an  event  shall  happen  or  an  act  shall  be  performed  in  the 
future,  before  the  policy  shall  become  effectual.  It  is  more  in  the 
nature  of  a  defeasance,  where  the  insured  contracts  that,  if  the  rep- 
resentations made  by  him  are  not  true,  the  policy  shall  be  defeated  and 
avoided.  But,  even  if  these  warranties  are  to  be  deemed  conditions 
precedent,  it  has  become  settled  in  insurance  law,  for  practical  rea- 
sons, that  the  burden  is  on  the  insurer  to  plead  and  prove  the  breach 
of  the  warranties. 

Not  only  so,  but  he  must,  in  his  pleading,  single  out  the  answers 
whose  truth  he  proposes  to  contest,  and  show  the  facts  on  which  his 
contention  is  founded.  Otherwise,  the  insured  would  enter  the  trial 
ignorant  as  to  which  of  his  numerous  answers  would  be  assailed  as 


218         CONSENT  OF    PARTIES — REPRESENTATIONS  AND    WARRANTIES 

false.  The  number  of  questions  in  these  applications  is  usually  very 
great,  relating  to  the  habits  and  health  of  ancestors,  the  personal 
habits  and  condition  of  the  applicant,  etc.,  the  truth  of  many  of  which 
it  would  be  impossible  to  prove  affirmatively  after  the  death  of  the 
insured.  To  require  such  proof  on  part  of  the  beneficiary  would  de- 
feat more  than  half  of  the  life  policies  ever  issued.  On  the  other 
hand,  it  is  no  hardship  to  require  of  the  insurer,  if  he  believes  that 
any  of  these  answers  were  false,  that  he  specifically  allege  which  ones 
he  claims  to  be  false,  and  produce  evidence  of  the  truth  of  his  claim. 
It  would  be  superfluous  to  cite  authorities  on  this  subject;  but,  to 
the  point  that  these  warranties  are  not  conditions  precedent,  in  the 
legal  sense  of  the  term,  we  refer- to  Redman  v.  Insurance  Co.,  49  Wis. 
431,  4  N.  W.  591 ;  and,  for  a  forcible  statement  of  the  practical  rea- 
sons for  the  rule,  to  Insurance  Co.  v.  Ewing,  92  U.  S.  ^17,  23  L.  Ed. 
610. 

The  dictum  in  Price  v.  Insurance  Co.,  17  Minn.  497  (Gil.  473),  10 
Am.  Rep.  166,  that  warranties  are  conditions  precedent,  the  truth  of 
which  must  be  pleaded  and  proved  by  the  assured,  was,  we  think,  in- 
advertent, and  cannot  be  adhered  to.  We  therefore  hold  that  it  was 
no  part  of  plaintiff's  case  to  either  allege  or  prove  the  truth  of  the 
answers  in  the  application,  that  the  burden  of  alleging  and  proving 
their  falsity  was  on  the  defendant,  that  it  v/as  bound  to  specify  in 
its  defense  the  particular  answers  which  it  claimed  were  false,  and 
that  on  the  trial  it  was  properly  limited  in  its  proof  to  those  answers 
which  it  had  specifically  alleged  to  be  false.     *     *     *     Affirmed.^^ 


V.  Affirmative   and   Promissory  Warranties  ^" 


KNECHT  V.  MUTUAL  LIFE  INS.  CO.  OF  NEW  YORK. 

(Supreme  Coiu-t  of  Pennsylvania.  1879.     90  Pa.   118.  35  Am.  Rep.  641.) 

Amicable  action  of  assumpsit,  by  A.  S.  Knecht,  administrator  of 
Abram  F.  Fangboner,  deceased,  against  the  Mutual  Life  Insurance 
Company  of  New  York.  In  January,  1868,  the  deceased  applied  to 
the  defendant  for  a  policy  of  insurance  upon  his  life,  the  application, 
among  other  clauses,  containing  the  following:  "And  the  said  Abram 
F.  Fangboner  further  declares  that  he  is  not  now  afilicted  with  any 

15  The  contrnry  rule  prevails  in  Rhode  Island  and  Connecticut.  See 
Sweeney  v.  Metropolitan  Life  Ins.  Co.,  19  R.  I.  171,  36  Atl.  9,  38  L.  R.  A. 
297,  61  Am.  St.  Rep.  751  (1896) ;  Hennessey  v.  Metropolitan  Life  Ins.  Co., 
74  Conn.  699,  52  Atl.  490  (1902). 

16  For  discussion  of  principles,  see  Vance  on  Insurance,  §  105.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  p.  1465;    vol.  3,  p.  2188. 


AFFIRMATIVE   AND   PROMISSOKY    WARRANTIES  219 

disease  or  disorder,  and  that  he  does  not  now,  nor  will  he,  practice 
any  pernicious  habit  that  obviously  tends  to  the  shortening  of  life." 
It  is  alleged  that  upon  the  faith  of  the  conditions  and  promises  in  said 
application,  the  defendant  issued  a  policy  to  deceased.  Among  the 
provisions  of  said  policy  was  the  following:  "If  any  of  the  statements 
or  declarations  made  in  the  application  for  this  policy,  upon  the  faith 
of  which  this  policy  is  issued,  shall  be  found  in  any  respect  untrue, 
then  and  in  every  such  case  this  policy  shall  be  null  and  void."  At 
the  time  of  making  the  application  for  insurance,  Fangboner  was  of 
correct  and  temperate  habits.  Some  years  after  the  issuing  of  the  pol- 
icy he  became  addicted  to  the  use  of  intoxicating  drinks,  from  the 
immoderate  use  of  which  he  was  attacked  with  delirium  tremens,  from 
which  he  died.^^ 

Paxson,  J.  It  is  not  alleged  that  in  his  application  for  insurance 
the  insured  made  any  false  representation  of  an  existing  fact.  What 
he  did  declare  was,  "that  he  is  not  now  afflicted  with  any  disease  or 
disorder,  and  that  he  does  not  now,  nor  will  he,  practice  any  pernicious 
habit  that  obviously  tends  to  the  shortening  of  life."  The  case  stated 
sets  forth :  "That  at  the  times  of  making  the  aforesaid  application  for 
insurance,  the  said  Abram  F.  Fangboner  was  of  correct  and  temper- 
ate habits ;  that  some  years  after  the  issuing  of  said  policy  he  became 
addicted  to  the  use  of  intoxicating  drinks,  from  the  immoderate  use 
of  which  he  was  attacked  with  delirium  tremens,  from  which  he  died." 
The  policy  issued  in  pursuance  of  said  application  contained  this  pro- 
vision: "If  any  of  the  statements  or  declarations  made  in  the  appli- 
cation for  this  policy,  upon  the  faith  of  which  this  policy  is  issued, 
shall  be  found  in  any  respect  untrue,  then  and  in  every  such  case  this 
policy  shall  be  null  and  void." 

It  is  unnecessary  to  discuss  the  question  as  to  whether  the  declara- 
tions of  the  insured  as  to  existing  facts  in  his  application,  constitute 
a  warranty.  The  authorities  are  by  no  means  uniform  upon  this  point. 
Our  own  recent  case  of  Washington  Life  Insurance  Co.  v.  Schaible, 
1  Wkly.  Notes  Cas.  369,  holds  that  they  do  not  constitute  such  war- 
ranty. Where,  however,  the  policy  has  been  issued  upon  the  faith  of 
such  representations,  and  they  are  false  in  point  of  fact,  the  better 
opinion  seems  to  be  that  the  policy  is  avoided.  And  this  is  so  even 
where  the  false  statement  is  to  a  matter  not  material  to  the  risk.  Jef- 
fries V.  Life  Insurance  Co.,  22  Wall.  47,  22  L.  Ed.  833.  In  such  case 
the  agreement  is  that  if  the  statements  are  false,  there  is  no  insur- 
ance ;  no  policy  is  made  by  the  company,  and  no  policy  is  accepted  by 
the  insured. 

In  the  case  in  hand  the  policy  attached.  There  was  nothing  to 
avoid  it  ab  initio.  Were  the  mere  declarations  by  the  insured  in  his 
application,  as  to  his  future  intentions,  and  his  failure  to  carry  out 
his  declarations,  or  to  comply  with  his  intentions  as  to  his  future  con- 

17  The  statement  of  facts  is  abridged  from  that  in  the  oflacial  report. 


220  CONSENT   OF    PARTIES REPRESENTATIONS   AND    WARRANTIES 

duct,  sufficient  to  work  subsequent  forfeiture  of  the  policy?  In  no 
part  of  the  application  did  the  assured  covenant  that  he  would  not 
practice  any  pernicious  habit.  Nor  did  he  promise,  agree  or  war- 
rant not  to  do  so.  He  declared  that  he  would  not.  To  declare,  is 
to  state ;  to  assert ;  to  publish  ;  to  utter  ;  to  announce ;  to  announce 
clearly  some  opinion  or  resolution ;  while  to  promise  is  to  agree ;  "to 
pledge  one's  self ;  to  engage ;  to  assure  or  make  sure ;  to  pledge  by 
contract." — Worcester.  There  is  no  clause  in  the  policy  which  pro- 
vides that  if  the  assured  shall  practice  any  pernicious  habit  tending  to 
shorten  life,  the  policy  shall  ipso  facto  become  void.  There  is  only 
the  stipulation  that,  "if  any  of  the  statements  or  declarations  made 
in  the  application  *  *  *  shall  be  found  in  any  respect  untrue, 
this  policy  shall  be  null  and  void."  This  evidently  referred  to  a  state 
of  things  existing  at  the  time  the  policy  was  issued. 

As  to  such  matters,  as  I  have  already  said,  there  was  no  untrue 
statement.  But  the  assured  declared,  as  a  matter  of  intention,  that 
he  would  not  practice  any  pernicious  habit.  Was  this  declaration  of 
future  intention  false?  There  is  no  allegation,  much  less  proof,  that 
it  was  so.  The  assured  might  well  have  intended  to  adhere  to  his 
declaration  in  the  most  perf(Vt  good  faith,  yet  in  a  moment  of  tempta- 
tion have  been  overcome  by  this  insidious  enemy.  In  the  absence  of 
any  clause  in  the  policy  avoiding  it  in  case  the  assured  should  practice 
any  such  habit,  and  of  any  covenant  or  warranty  on  his  part  that  he 
would  not  do  so,  we  do  not  think  his  mere  declaration  to  that  effect 
in  the  application  sufficient  to  avoid  the  policy. 

The  judgment  is  reversed,  and  judgment  is  now  entered  in  favor  of 
the  plaintiff  and  against  the  defendant  for  the  sum  of  $1,500,  with 
interest  from  June  26,  1876.^^ 


PORT  BLAKELY  MILL  CO.  v.  SPRINGFIELD  FIRE  &  MA- 
RINE INS.  CO. 

(Supreme  Court  of  Washington,   1910.     56   Wash.   681,   106   Pac.   194,  28   L. 

R.  A.   [N.  S.]  593.) 

Action  by  the  Port  Blakely  Mill  Company  and  the  Detroit  Trust 
Company  against  the  Springfield  Fire  &  Marine  Insurance  Company. 
From  a  judgment  for  plaintiffs,  defendant  appeals. 

Morris,  J.^*^  Action  upon  a  fire  insurance  policy  written  by  appel- 
lant, insuring  the  property  of  the  mill  company  against  loss  by  fire 
in  the  sum  of  $10,000,  with  loss,  if  any,  payable  to  the  Detroit  Trust 
Company.  The  policy  was  in  the  usual  form,  except  that  it  had  at- 
tached to  it  a  rider  containing  a  description  of  the  property  insured, 

18  Compare  Schultz  v.  Mutual  Life  Ins.  Co.  (C.  C.)  6  Fed.  672  (1881)  and 
Northwestern  Masonic  Aid  Ass'n  v.  Bodurtha,  23  Ind.  App,  121,  53  N.  E. 
787,  77  Am.  St.  Rep.  414  (1899 1. 

19  Part  of  the  opinion  is  omitted. 


AFFIRMATIVE    AND   PROMISSORY    WARRANTIES  221 

and  various  special  agreements  with  reference  to  the  particular  risk. 
On  April  22,  1907,  a  fire  occurred,  whereby  a  portion  of  the  insured 
property  was  damaged.  The  appellant,  contending  that  the  policy  had 
been  avoided  by  the  failure  of  the  mill  company  to  observe  one  of  the 
special  agreements,  claimed  to  be  a  "warranty,"  denied  its  liability, 
and  this  action  was  instituted  to  enforce  payment,  resulting  in  findings 
in  favor  of  respondents,  and  a  judgment  in  the  sum  of  $6,452.90,  with 
interest  from  July  15,  1907,  from  which  this  appeal  was  taken. 

Three  contentions  are  made  by  applicant,  upon  which  we  are  asked 
to  reverse  the  judgment: 

(1)  That  the  Detroit  Trust  Company  may  not  maintain  an  action 
within  this  state,  not  having  paid  an  annual  license  fee  nor  otherwise 
complied  with  the  provisions  of  our  laws  in  regard  to  foreign  corpora- 
tions doing  business  within  this  state. 

(2)  That  the  policy  was  avoided  by  the  breach  of  a  warranty  therein 
contained. 

(3)  That  an  automatic  sprinkler  system  connected  with  the  mill 
plant  was  not  in  working  order  at  the  time  of  the  fire. 

Each  of  these  contentions  has  been  considered,  but,  having  reached 
a  conclusion  upon  the  second  which  is  determinative  of  the  appeal, 
we  will  not  discuss  the  first  and  third.  The  clause  in  the  policy  which 
suggests  the  second  assignment  of  error  is  as  follows :  "Warranted 
by  the  insured  that  due  diligence  be  used  that  the  automatic  sprinkler 
system  shall  at  all  times  be  maintained  in  good  working  order." 

The  Port  Blakely  Mill  Company  was  what  is  known  in  insurance 
circles  as  "a  sprinkler  risk,"  and  the  evidence  discloses  that  the  rate 
of  premium  upon  "a  sprinkler  risk"  was  approximately  50  per  cent, 
less  than  upon  the  same  mill  without  the  sprinkler  attachment.  So 
that,  by  the  maintenance  of  the  sprinkler  system  and  the  insertion  in 
the  policy  of  the  clause  above  referred  to,  the  mill  company  obtained 
this  policy  upon  the  payment  of  $229  premium,  which  otherwise  would 
have  cost  it  approximately  $458.  It  is  apparent,  therefore,  that  both 
parties  had  fully  in  mind  at  the  time  of  the  issuance  of  the  policy  the 
advantages  that  would  result  to  each  because  of  the  existence  of  the 
sprinkler  system,  and  the  use  of  due  diligence  on  the  part  of  the  in- 
sured to  maintain  it  in  good  working  order  at  all  times.  To  the  in- 
sured it  meant  a  saving  of  $229  on  the  premium  paid,  to  the  insurer 
it  meant  a  lessening  of  its  risk,  ample  consideration  to  each  why  this 
particular  form  of  policy  should  be  chosen,  and  the  sprinkler  clause 
made  a  part  thereof;  and,  having  in  mind  this  situation,  it  is  not  un- 
reasonable to  assume  that  the  words  used  in  the  sprinkler  clause  were 
employed  by  both  parties  with  a  full  understanding  that  it  was  a 
statement  and  assumption  of  condition  and  undertaking  on  the  part 
of  the  insured,  relating  to  the  risk  and  affecting  its  character  and  ex- 
tent. 

While,  as  is  said  by  Shaw,  C.  J.,  in  Daniels  v.  Hudson  River  Fire 
Ins.  Co.,  12  Cush.  (Mass.)  416,  at  page  423  (59  Am.  Dec.  192),  "there 


222  CONSENT   OF    PARTIES REPRESENTATIONS   AND    WARRANTIES 

is  undoubtedly  some  difficulty  in  determining  by  any  simple  and  cer- 
tain test  what  propositions  in  a  contract  of  insurance  constitute  war- 
ranties ;"  and  conceding  the  leaning  of  the  courts,  in  order  to  pro- 
tect the  insured  and  avoid  a  forfeiture,  is  to  hold  agreements  and  stip- 
ulations in  the  policy  to  be  representations  rather  than  warranties  in 
all  cases  where  there  is  any  room  for  construction,  it  has  nevertheless 
become  fixed  and  settled,  except  in  so  far  as  it  may  have  been  changed 
and  modified  by  statute  in  some  of  the  states,  that  all  statements  re- 
garding the  risk  contained  in  or  appearing  on  the  face  of  the  policy 
are  warranties.  Cooley's  Briefs  on  the  Law  of  Insurance,  p.  1133. 
And  such  is  the  rule  irrespective  of  the  use  of  the  word  "warranty" 
or  "warranted."  Redman  v.  Hartford  Ins.  Co.,  47  Wis.  89,  1  N.  W. 
393,  32  Am.  Rep.  751;  Wood  v.  Hartford  Ins.  Co.,  13  Conn.  534, 
35  Am.  Dec.  92;  Moulor  v.  Am.  Life  Ins.  Co.,  Ill  U.  S.  341,  4  Sup. 
Ct.  466,  28  L.  Ed.  447 ;   Barnard  v.  Faber,  L.  R.  1  Q.  B.  340. 

Wood  on  Fire  Insurance,  at  page  449,  says:  "The  rule  seems  to 
be  that  such  representations  in  or  a  part  of  the  policy  are  construed 
to  be  warranties  when  it  appears  to  the  court  that  they  have  had  in 
themselves,  or  in  the  view  of  the  parties,  a  tendency  to  induce  the 
company  to  enter  into  the  contract  on  terms  more  favorable  to  the 
insured  than  without  them.  *  *  *  Any  statement  or  description 
of  any  undertaking  on  the  part  of  the  assured  on  the  face  of  the 
policy  which  relates  to  the  risk  is  a  warranty,  an  express  warranty. 
*  *  *  It  is  is  not  necessary  that  it  should  be  stated  to  be  a  war- 
ranty, or  that  it  should  be  so  by  construction.  It  is  enough  that  it  ap- 
pears upon  the  face  of  the  policy  and  relates  to  the  risk." 

The  case  before  us  would  undoubtedly  fall  within  such  a  rule  as 
Mr.  Wood  refers  to,  when  it  appears  that  the  premium  on  this  policy 
upon  a  "sprinkler  risk,"  and  with  the  sprinkler  clause  added  was  re- 
duced approximately  50  per  cent,  of  what  it  would  have  been  other- 
wise. This  was  certainly  in  his  language  "a  tendency  to  induce  the 
company  to  enter  into  the  contract  on  terms  more  favorable  to  the 
insured  than  without  them."  In  Wood  v.  Hartford  Ins.  Co.,  supra, 
the  court  says:  "The  general  rule  in  regard  to  what  constitutes  a 
warranty  in  a  contract  of  insurance  is  well  settled.  Any  statement  or 
description  or  any  undertaking  on  the  part  of  the  insured  on  the 
face  of  the  policy  which  relates  to  the  risk  is  a  warranty.  *  *  * 
When  it  is  once  ascertained  that  it  relates  to  the  risk  and  was  in- 
serted in  reference  to  that,  it  must  be  strictly  observed  and  kept  or 
the  insurance  is  void."  To  our  minds  the  conclusion,  both  upon  rea- 
son and  authority,  is  that  the  clause  in  question  was  and  is  a  warranty. 

Having  reached  this  conclusion,  there  is  but  one  other  question  to 
be  considered:  Was  there  a  breach  of  this  warranty?  It  is  undisputed 
that  from  April  1st  to  April  21st  the  sprinkler  system  in  what  was 
known  in  the  mill  as  "No.  3"  was  disconnected.  The  fire  occurred  on 
April  22d,  and  there  is  a  sharp  conflict  in  the  testimony  as  to  whether 
or  not  No.  3  was  in  operation  at  the  time  of  the  fire.    But,  giving  due 


WARRANTIES    DISTINGUISHED   FROM    REPRESENTATIONS  223 

weight  to  the  finding-  of  the  court  below  that  it  was  connected  upon 
April  21st,  there  was  a  period  of  nearly  three  weeks  when  it  is  ad- 
mitted that  no  protection  was  accorded  by  the  sprinkler  system  in  No. 
3.  The  repairs  undertaken  by  the  mill  during  this  time  were  permis- 
sible under  the  policy,  but  it  appears  that  it  was  the  work  of  only 
a  few  hours  to  disconnect  system  Mo.  3  from  its  old  location  and 
move  it  to  its  new.  Such  being  the  fact,  it  was  not  "due  diligence," 
as  called  for  in  the  policy,  for  the  mill  company  to  continue  the  op- 
eration of  the  mill  without  the  protection  of  sprinkler  system  No.  3. 
It  was  an  undoubted  and  material  increase  in  the  risk,  contrary  to 
the  terms  of  the  warranty,  and  was  a  breach  thereof.  The  mill  com- 
pany, having  broken  its  contract  of  warranty  by  the  failure  to  use 
due  diligence  in  maintaining  the  sprinkler  system  at  all  times  in  good 
working  order,  by  such  failure  released  the  appellant  from  liability 
under  the  policy,  and  the  same  thereby  was  avoided.  So  that  whether 
or  not  the  system  in  No.  3  was  in  good  working  order  on  April  22d 
is  immaterial,  since  the  policy,  because  of  the  breach  of  the  warranty, 
was  not  then  in  force  or  effect.  And  it  was  likewise  immaterial 
whether  or  not  this  breach  contributed  to  the  loss.  The  policy,  being 
at  an  end  because  of  its  broken  warranty,  no  longer  covered  any  loss 
or  damage  to  the  mill  property,  and  was  wholly  avoided.  *  *  * 
Reversed. 


VI.  Warranties  Distinguished  from   Representations 


20 


VIVAR  V.  SUPREME  LODGE  KNIGHTS  OF  PYTHIAS. 

(Supreme  Court  of  New  Jersey.  1890.     52  N.   J.  Law,  455,  20  Atl.  36.) 

Action  by  Emily  L.  Vivar  on  certificates  of  membership  in  the  En- 
dowment Rank  of  the  Order  of  Knights  of  Pythias,  whereby  the  life 
of  Darius  Vivar  was  insured.  On  the  trial  verdict  was  directed  for 
plaintiff,  and  defendant  took  a  rule  to  show  cause  why  the  verdict 
should  not  be  set  aside. 

Dixon,  J.^^  *  *  *  f\^Q  next  ground  on  which  the  defendant 
seeks  a  new  trial  is  that  although  Vivar,  in  his  application  for  mem- 
bership in  the  Endowment  Rank,  in  response  to  the  question,  "State 
definitely  to  whom  you  wish  the  benefit  made  payable,  and  relationship 
to  you,"  had  answered,  "To  my  wife,  Emily  Louisa  Vivar,"  and  al- 
though by  the  certificates  sued  on  the  sums  insured  were  made  paya- 

2  0  For  discussion  of  principles,  see  Vance  on  In.surance,  §§  106,  107.     See, 

also.  Cooler.  Briefs  on  the  Law  of  Insurance,  vol.  2,  p.  1120;    vol.  3,  p.  192G. 

21  Part  of  tlie  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


224  CONSENT   OF    PARTIES REPRESENTATIONS   AND    WARRANTIES 

ble  to  "Emily  Louisa  Vivar,  his  wife,"  yet  the  trial  judge  rejected  evi- 
dence offered  by  the  defendant  to  show  that,  before  and  at  the  time 
of  the  plaintiff's  marriage  to  Vivar,  he  had  a  lawful  wife  living,  and 
both  he  and  the  plaintiff  knew  it.  The  defendant,  while  admitting  that 
the  plaintiff  is  the  person  intended  by  the  contract,  yet  insists  that 
her  being  Vivar's  lawful  wife  was  made  a  condition  of  the  obligation ; 
that,  as  a  part  of  the  contract,  Vivar  warranted  the  existence  of  such 
relationship. 

By  the  terms  of  the  certificates,  the  application  forms  part  of  the 
contract.  Nevertheless  the  statements  contained  in  it  are  not  neces- 
sarily, for  that  reason,  warranties.  In  order  to  have  the  force  of  a 
warranty,  the  statement  must,  indeed,  constitute  part  of  the  contract ; 
but  whether  even  such  a  statement  should  be  deemed  a  warranty  de- 
pends upon  the  just  construction  of  the  entire  agreement.  Courts  do 
not  favor  warranties  by  construction,  and  hence  parties  will  not  be 
held  to  have  entered  into  the  contract  of  warranty  unless  they  clearly 
appear  to  have  intended  it.  If  the  contract  refers  to  statements  con- 
tained in  another  paper  for  some  other  purpose  than  to  give  them 
the  force  and  effect  of  warranties, — for  instance,  if  it  refers  to  them 
as  "representations," — or  if  the  purpose  is  doubtful,  such  reference 
will  not  convert  the  statements  into  warranties.  Of  themselves,  state- 
ments in  the  application  are  mere  representations,  and  they  will  not 
become  conditions  or  warranties,  unless  the  parties  plainly  evince  an 
intention  to  make  them  such,  either  by  so  denominating  them,  or  by 
declaring  the  validity  of  the  contract  to  depend  upon  their  literal 
truth.  May,  Ins.  §§  158-165;  Insurance  Co.  v.  Day,  39  N.  J,  Law, 
89,  23  Am.  Rep.  198.  Even  calling  the  statements  warranties  will  not 
make  them  such,  when  other  terms  in  the  contract  indicate  a  different 
understanding.  Fitch  v.  Insurance  Co.,  59  N.  Y.  557,  17  Am.  Rep. 
372;    Anders  v.  Supreme  Lodge,  51  N.  J.  Law.  175,  17  Atl.  119. 

Under  these  rules,  the  statements  in  the  application  now  before  us 
are  not  warranties.  The  certificates  do  not  so  designate  them,  but,  on 
the  contrary,  style  them  "representations ;"  and  in  making  them  part 
of  the  contract  must  be  deemed  to  incorporate  them  as  representa- 
tions. Nor  is  there  in  the  contract  any  provision  to  the  effect  that, 
if  they  be  false  or  untrue  or  inaccurate,  the  insurance  will  be  void. 
The  clause  at  the  end  of  the  certificates  "that  any  violation  of  the 
w^ithin  mentioned  conditions  *  *  *  shall  render  the  certificate 
and  all  claims  null  and  void,"  must  be  understood  as  referring  to 
matters  which,  by  other  parts  of  the  contract,  are  made  conditions, 
and  cannot  of  itself  create  a  condition  out  of  what  had  been  before 
mentioned  as  a  representation  only.  The  trial  court,  therefore,  prop- 
erly held  that  the  statement  concerning  the  relationship  between  Vivar 
and  the  plaintiff  was  not  a  warranty. 

It  remains,  however,  to  determine  what  effect  it  should  have  upon 
the  contract,  if  considered  as  a  representation  untrue  to  the  knowledge 
of  the  insured;   for  to  that  extent  was  the  defendant's  offer  of  proof. 


WARRANTIES    DISTINGUISHED   FROM    REPRESENTATIONS  225 

In  order  to  invalidate  a  contract,  a  representation  made  during  the 
negotiations  must  not  only  be  willfully  untrue,  but  must  also  be  ma- 
terial, or,  at  least,  must  appear  to  have  been  thought  material,  by  the 
party  to  whom  it  was  made.     *     *     * 

If  the  representation  made,  though  known  by  the  insured  to  be  false, 
did  not  differ  from  the  truth  in  any  respect  which  was,  either  in  fact 
or  in  the  view  of  the  insurer,  material  to  the  contract,  then  the  false- 
hood did  not  mislead  the  insurer,  or  induce  the  contract,  and  should 
not  be  allowed  to  avoid  it. 

Usually,  the  materiality  of  a  representation  will  be  inferred  from 
the  fact  that  it  was  made  pending  the  negotiations,  in  response  to  a 
specific  inquiry  by  the  insurer;  but  this  rule  is  not  universal;  for 
the  purpose  of  the  inquiry  must  be  considered,  to  see  whether  the  in- 
formation is  sought  to  aid  the  insurer  in  fixing  the  terms  on  which  he 
will  contract,  or  with  an  entirely  different  object.  Thus,  if  a  mutual 
insurance  company  should  require  its  premiums  to  be  paid  within  a 
definite  time  after  the  mailing  of  notice  addressed  to  the  residence  of 
the  insured,  and  with  this  rule  in  view  should  require  every  applicant 
for  insurance  to  state  his  residence  in  his  application,  and  an  applicant 
should  give  as  his  residence,  not  the  truth,  but  the  place  where  he 
ordinarily  received  his  mail,  it  would  seem  absurd  to  hold  that  such 
circumstance  could  invalidate  the  contract. 

In  the  present  case,  the  inquiry  related  merely  to  the  payee  of  the 
money  for  which  the  insurer  was  to  become  responsible,  and  by  the 
very  terms  of  the  contract  subsequently  made  the  insurer  expressly 
left  the  designation  of  the  payee  to   the  absolute   discretion  of  the 
insured ;   the  language  of  the  certificates  being  that  the  supreme  lodge 
will  pay  the  sum  insured  to  "Emily  Louisa  Vivar,  his  wife,  as  di- 
rected by  said  brother  [Vivar]  in  his  application,  or  to  such  other  per- 
son or  persons  as  he  may  subsequently  direct  by  will  or  otherwise." 
A  similar  power  is  given  to  the  insured  by  article  9  of  the  constitu- 
tion of  the  rank.     It  seems  manifest  that  a  subject  thus  committed  te 
the  control  of  the  insured  was  not  material  to  the  contract  of  the 
insurer,  nor  so  regarded  by  the  insurer;    and  that,  if  Mvar  had  de- 
clared Emily  Louisa  Vivar  to  be  not  related  to  him,  as  the  lodge  now 
alleges  the  truth  to  have  been,  the  contract  would  have  been  made  on 
precisely  the  same  terms  as  at  present.     While,  therefore,  the   fact 
that  the  question  was  put  might  justify  an  inference  that  relationship 
between  the  payee  and  the  member  was  thought  material,  yet  the  ex- 
press terms  of  the  certificates,  and  the  provisions  of  the  constitution, 
force  the  conclusion  that  it  was  not.     In  this  respect  the  Endowment 
Rank  of  the  Knights  of  Pythias  differs  from  those  benevolent  societies 
wdiich  are  organized  for  the  benefit  of  members  and  their  families 
solely,  and  with  regard  to  which  it  has  been  properly  held  that  the 
relationship  of  the  payee  is  material.     Supreme  Council  v.  Green,  71 
Md.  263,  17  Atl.  1048,  27  Am.  St.  Rep.  527;    American  Legion  v. 
Smith,  45  N.  J.  Eq.  466,  17  Atl.  770. 
CooLEY  Ins. — 15 


226  CONSENT   OF    PARTIES REPRESENTATIONS  AND    WARRANTIES 

The  defendant  further  insists  that  the  relationship  was  made  ma- 
terial by  the  legal  necessity  that  the  beneficiary  should  have  an  insur- 
able interest  in  the  life  insured.  In  New  Jersey,  the  tendency  of 
judicial  opinion  seems  to  be  in  favor  of  the  proposition  that  the  as- 
sured need  not  have  an  interest  in  the  life  insured,  in  order  to  sup- 
port the  contract  of  insurance.  Insurance  Co.  v.  Johnson,  24  N.  J. 
Law,  576;  Martin  v.  Insurance  Go.,  38  N.  J.  Law,  140,  20  Am.  Rep. 
372.  Elsewhere  contracts  of  insurance  without  such  an  interest  are 
generally  condemned,  as  being  contrary  to  public  policy;  yet  even  in 
those  jurisdictions  the  ordinary  rule  appears  to  be  that  when  a  per- 
son effects  an  insurance  on  his  own  life,  and  in  the  policy  designates 
another  person  as  payee  of  the  sum  insured,  the  latter  may  maintain 
an  action  on  the  policy  without  showing  an  insurable  interest  in  the 
life.     Campbell  v.  Insurance  Co.,  98  Mass.  381;    May,  Ins.  §  112. 

In  view  of  the  opinions  heretofore  expressed  in  this  court,  we 
should  apply  this  rule  to  the  present  case,  and  hold  that  an  insurable 
interest  in  the  payee  of  these  certificates  was  not  requisite,  and  that 
consequently  her  relationship  to  Vivar  did  not  become  material  on  that 
ground.  Our  conclusion  is  that  the  relationship  of  Vivar  to  the  plain- 
tiff was  not  material  to  the  contract,  either  in  fact  or  in  contempla- 
tion of  the  insurer,  and  that,  therefore,  the  falsity  of  Vivar's  state- 
ment regarding  it  could  not  invalidate  the  insurance. 

The  last  reason  urged  for  a  new  trial  is  that  Vivar  in  his  applica- 
tion misstated  his  age.  There  was,  however,  no  testimony  produced 
at  the  trial  which  would  warrant  a  finding  to  that  effect. 

On  the  whole,  we  think  that  justice  was  done  by  the  verdict,  and 
that  the  rule  to  set  it  aside  should  be  discharged. ^^ 


LYNCH   V.    PRUDENTIAL   INS.   CO.    OF   AMERICA. 

(Court  of  Appeals  of  Missouri,  1910.     150  Mo.  App.  461,  131  S.  W.  145.) 

Action  by  Maggie  Lynch  against  the  Prudential  Insurance  Company 
of  America.     Judgment  for  plaintiff.     Defendant  appeals. 

NoRTONi,  J.-^  *  *  *  Defendant,  *  *  *  on  the  23d  day  of 
July,  1907,  issued  its  policy  of  insurance  in  the  amount  of  $1,000  on 
the  life  of  Michael  J.  Lynch,  payable  in  event  of  his  prior  death  to 
his  wife,  Maggie  Lynch,  the  plaintiff.  About  six  months  thereafter, 
January  29,  1908,  the  insured  died  as  a  result  of  paresis  while  insane, 
and,  though  proofs  of  his  death  were  duly  made,  defendant  declined 
and  refused  to  pay  the  policy,  asserting  that  it  was  obtained  through 

2  2  Compare  Gaines  v.  Fidelity  &  Casualty  Co.  of  New  York,  ante,  p.  214. 
See,  also,  as  to  distinction  between  warranties  and  representations,  Alabama 
Cold  Life  Ins.  Co.  v.  Johnston,  SO  Ala.  407,  2  Soutli.  125,  59  Am.  Rep.  816 
(1887). 

2  3  Part  of  the  opinion  is  omitted. 


OT 


WARRANTIES    DISTINGUISHED   FROM    REPRESENTATIONS  227 

misrepresentation  and  fraud,  and,  further,  that  there  was  a  breach 
of  warranty  in  respect  of  a  condition  contained  in  the  pohcy  to  the 
effect  that  the  insurance  should  not  become  effective  unless  the  in- 
sured was  in  sound  health  at  the  time  the  policy  was  issued. 

This  suit  having  been  instituted  on  the  policy,  defendant  answered 
thereto  by  interposing  three  affirmative  defenses,  w'hich  will  be  no- 
ticed in  their  order.  For  its  first  defense,  it  is  averred  that  at  the  time 
of  making  application  to  it  for  the  insurance  the  insured  stated  therein 
that  he  was  in  good  health,  and  that  he  had  never  been  attended  by 
a  physician,  and  that  he  had  never  suffered  from  insanity ;  that,  rely- 
ing upon  the  truth  of  said  statements,  defendant  contracted  the  insur- 
ance involved,  which,  but  for  its  belief  in  the  truth  of  the  statements 
aforesaid,  would  not  have  been  issued. 

It  is  averred,  too,  that  each  and  all  of  said  statements  were  misrepre- 
sentations of  fact  on  the  part  of  the  insured,  in  that  he  was  not  then 
in  good  health,  but  was  suffering  from  a  disease  known  as  paresis,  or 
softening  of  the  brain ;  that  the  insured  had  been  attended  by  a  phy- 
sician .prior  to  the  date  of  his  application,  and  was  then  under  the  care 
of  a  physician ;  and  that  he  had  suffered  and  was  then  suffering  from 
insanity.  It  is  further  averred  that  the  said  disease,  from  which  in- 
sured represented  he  had  never  suffered,  and  for  which  he  had  been 
attended  by  physicians,  and  which  at  the  time  rendered  his  health  un- 
sound, directly  contributed  to  and  occasioned  his  death  on  January  29th 
thereafter,  while  in  the  insane  asylum.  Wherefore  it  is  said  the  mat- 
ters so  misrepresented  by  insured  to  defendant  actually  contributed  to 
the  event  on  which  the  policy  became  due  and  payable,  and  that  said 
misrepresentations  were  therefore  material,  and  rendered  the  policy 
void  and  of  no  effect.  Defendant  also  tendered  all  of  the  premiums 
which  had  been  paid  on  the  policy.     *     *     * 

It  may  be  conceded  the  testimony  shows  conclusively  that  the  insured 
had  been  waited  upon  by  two  physicians  recently  before  the  insurance 
w^as  effected ;  but  there  is  no  word  in  the  proof  tending  to  show  from 
what  malady  he  then  suffered,  if  any,  and  for  what  he  was  treated, 
if  treated  at  all,  by  those  physicians.  The  mere  fact  that  the  applica- 
tion contained  a  false  statement  with  respect  to  the  matter  that  insured 
had  not  been  treated  by  a  physician  and  was  in  sound  health  is  not  suf- 
ficient to  render  the  policy  void  under  our  statute,  unless  it  appears 
he  was  treated  for  the  disease  which  afterwards  occasioned  his  death. 
Such  a  misrepresentation  is  not  a  warranty,  under  our  insurance  law 
as  modified  by  the  rule  of  the  statute,  and  is  wholly  immaterial,  un- 
less it  was  made  -with  respect  to  a  fact  which  actually  contributed  to 
the  contingency  or  event  on  which  the  policy  is  to  become  payable. 
Even  then,  the  question  whether  such  representation  concerned  a  matter 
which  did  so  contribute  is  one  for  the  jury  under  the  positive  mandate 
of  the  statute. 

The  statute  referred  to  is  as  follows :  "No  misrepresentation  made 
in  obtaining  or  securing  a  policy  of  insurance  on  the  life  or  lives  of 


228  CONSENT   OF    PARTIES REPRESENTATIONS   AND    WARRANTIES 

any  person  or  persons,  citizens  of  this  state,  shall  be  deemed  material, 
or  render  the  policy  void,  unless  the  matter  misrepresented  shall  have 
actually  contributed  to  the  contingency  or  event  on  which  the  policy 
is  to  become  due  and  payable,  and  whether  it  so  contributed  in  any 
case,  shall  be  a  question  for  the  jury."  Section  7890,  Rev.  St.  1899 
(section  7890,  Ann.  St.  1906).  See,  also,  the  following  authorities  in 
point:  Schuermann  v.  Union  Cent.  Life  Ins.  Co.,  165  Mo.  641,  65  S. 
W.  723 ;  Keller  v.  Home  Life  Ins.  Co.,  198  Mo.  440,  95  S.  W.  903 ; 
Salts  V.  Prudential  Ins.  Co.,  140  Mo.  App.  142,  120  S.  W.  714;  Burns 
V.  Met.  Life  Ins.  Co.,  141  Mo.  App.  212,  124  S.  W.  539;  Ashford  v. 
Met.  Life  Ins.  Co.,  98  Mo.  App.  505,  72  S.  W.  712 ;  Christian  v.  Con- 
necticut Mut.  Life  Ins.  Co.,  143  Mo.  460,  45  S.  W.  268;  Cooley's 
Briefs  on  Insurance,  vol.  3,  pp.  1989,  1990. 

The  second  defense  relied  upon  sets  forth  a  warranty,  which,  it  is 
asserted,  is  contained  in  the  application,  and  a  condition  of  the  policy, 
together  to  the  effect  that,  unless  the  insured  was  in  sound  health  at 
the  time  of  issuing  the  policy,  it  should  not  take  effect.  A  breach  of 
this  warranty  is  alleged,  and  defendant  prays  to  be  discharged  on  that 
account.  The  court  declined  to  deal  with  this  matter  of  a  breach  of 
warranty,  and  refused  an  instruction  drafted  on  the  theory  that  the 
insured  had  warranted  his  good  health  in  the  application.  This  was 
entirely  proper ;  for  it  has  been  many  times  decided  that  the  statute 
quoted  abrogates  the  distinction  which  obtained  at  common  law  as  be- 
tween warranties  and  representations  in  life  insurance  contracts,  and 
relegates  matters  which  were  theretofore  regarded  as  warranties  to 
the  same  plane  as  that  occupied  by  representations.  Jenkins  v.  Cove- 
nant Mut.  Ins.  Co.,  171  Mo.  375,  71  S.  W.  688;  Keller  v.  Home  Life 
Ins.  Co.,  198  Mo.  440,  95  S.  W.  903 ;  Jacobs  v.  Omaha  Life  Ass'n, 
146  Mo.  523,  48  S.  W.  462 ;  Salts  v.  Prudential  Ins.  Co.,  140  Mo.  App. 
142,  120  S.  W.  714.  See,  also.  Schuermann  v.  Union  Cent.  Life  Ins. 
Co.,  165  Mo.  641,  65  S.  W.  723. 

In  a  recent  case  a  similar  matter  was  invoked  as  a  warranty,  and 
we  declared  the  statute  applied  to  the  conditions  and  stipulations  in  the 
policy  to  the  effect  that  it  should  not  take  eft'ect  unless  the  insured  was 
in  good  health  at  the  time,  as  well  as  to  misrepresentations  in  the  ap- 
plication. In  either  case  the  influence  of  the  statute  is  the  same ;  for 
the  public  policy  of  the  state,  as  declared  in  the  statute,  is  not  to  be 
thus  indirectly  evaded.  Though  the  condition  in  the  policy  based  on 
the  misrepresentation  in  the  application  would  amount  to  a  warranty 
prior  to  the  statute,  it  must  now  be  regarded  as  within  its  influence, 
and  no  longer  possessed  of  the  force  of  a  warranty,  unless  the  fact 
of  poor  health  at  the  time  actually  contributed  to  the  death  of  the  in- 
sured. Salts  V.  Prudential  Ins.  Co.,  140  Mo.  App.  142,  120  S.  W. 
714.  See,  also.  Burns  v.  Met.  Ins.  Co.,  141  Mo.  App.  212,  124  S.  W. 
539. 

Under  the  instructions  given  for  both  plaintiff  and  defendant  by 
which  the  first  defense  was  submitted,  the  verdict  for  plaintiff  affirmed 


WARRANTIES    DISTINGUISHED    FROM    REPRESENTATIONS  229 

either  that  the  insured  was  in  good  health  at  the  time  the  insurance 
was  effected,  or  that,  if  he  was  not  in  good  health  and  had  been  visited 
by  physicians,  his  then  condition  in  no  way  contributed  to  his  death  or 
the  event  upon  which  the  policy  became  payable.  This  verdict  respond- 
ed to  the  true  issue  under  the  law,  and  the  court  very  properly  de- 
clined to  treat  with  the  second  defense  on  the  basis  of  a  warranty; 
for  the  doctrine  no  longer  obtains  with  us  in  life  insurance  matters, 
unless  the  matter  said  to  be  warranted  becomes  material  by  contributing 
to  the  event  which  renders  the  policy  payable. 

The  third  count  of  defendant's  answer  presents  the  matter  of  willful 
fraud  on  the  part  of  both  the  insured  and  his  wife,  the  plaintiff,  in 
obtaining  the  insurance,  and  prays  that  the  policy  be  declared  void  for 
that  reason.  It  first  avers  the  insured  obtained  the  insurance  by  mis- 
representing the  facts  which  have  been  heretofore  detailed  as  to  his 
condition;  that  he  made  said  representations  for  the  fraudulent  pur- 
pose of  concealing  from  defendant  the  true  state  of  his  health,  etc., 
in  order  to  obtain  the  insurance ;  that  the  plaintiff,  his  wife,  at  the 
time  knew  of  the  insured's  impaired  condition  of  health,  and  fraudu- 
lently aided  and  abetted  him  in  procuring  the  insurance,  etc.  The 
court  declined  to  consider  this  matter,  otherwise  than  as  within  the 
influence  of  our  statute  above  quoted,  and  we  believe  this  was  proper,, 
for,  after  the  death  of  the  insured,  the  rule  of  the  statute  obtains  alike 
with  respect  to  willful  fraud  and  mere  misrepresentations.  So  much 
has  been  expressly  decided,  and  the  distinction  theretofore  sharply 
made  and  pointed  out  overruled. 

In  Ashford  v.  Insurance  Co.,  80  Mo.  App.  638,  and  Van  Cleave  v. 
Union  Casualty,  etc.,  Co.,  82  Mo.  App.  668,  the  Kansas  City  Court  of 
Appeals  declared  that  matters  of  willful  fraud  in  obtaining  the  policy 
were  beside  the  statute,  and  might  be  pleadsd  in  bar  to  an  action 
thereon.  But  the  doctrine  was  repudiated  by  the  Supreme  Court  in 
Kern  v.  Sup.  Council  Am.  Legion  of  Honor,  167  Mo.  471,  4S6,  487,  488, 
489,  67  S.  W.  252,  and  the  authority  of  those  cases  on  this  question 
expressly  overruled.  In  one  of  the  same  cases,  on  a  second  appeal 
(see  Ashford  v.  Alet.  Life  Ins.  Co.,  98  Mo.  App.  505,  72  S.  W.  712), 
the  Kansas  City  Court  of  Appeals  receded  from  its  former  position, 
and  in  obedience  to  the  ruling  of  the  Supreme  Court  held  that,  in  a 
suit  on  the  policy  after  the  death  of  the  insured,  matters  of  willful 
fraud  in  obtaining  its  issue  are  to  be  treated  as  immaterial,  unless  the 
fraud  relied  upon  actually  contributed  to  the  cause  of  death.  So  the 
doctrine  now  obtains  to  the  effect  that,  though  the  fraud  practiced  in 
obtaining  the  insurance  is  willful  and  designedly  done,  if  it  consists 
in  matter  of  fact  inducing  the  issue  of  the  policy,  it  will  be  regarded 
as  a  material  defense  in  a  suit  on  the  policy  only  when  it  appears  to 
have  been  about  a  matter  which  actually  contributed  to  the  cause  of 
death. 

Mr.  Coolev,  in  his  work  on  Insurance,  thus  states  the  Alissouri  doc- 
trine:   "In  Klostermann  v.  Germania  Life  Ins.  Co.,  6  Mo.  App.  582, 


230         CONSENT  OF    PARTIES — REPRESENTATIONS   AND    WARRANTIES 

the  court  seems  to  have  taken  the  position  that  the  :Missouri  statute, 
which  provides  that  an  untrue  statement  shall  not  defeat  the  policy, 
unless  it  relates  to  a  matter  contributing  to  the  loss,  would   apply, 
whether  the  statements  were  made  fraudulently  or  in  good  faith.    But 
in  Ashford  v.  ^letropolitan  Life  Ins.  Co.,  80  Mo.  App.  638,  the  court 
held  that  the  statute  would  not  apply  if  the  representations  were  willful 
or  fraudulent,  calling  attention  to  White  v.  Insurance  Co.,  29  Fed.  Cas. 
1011,  in  which  the  Missouri  statute  was  construed,  and  wherein  Judge 
Dillon  expressed  the  opinion  that  willful  or  fraudulent  misrepresenta- 
tions would  not  come  within  the  operation  of  the  statute.     Following 
the  Ashford  Case,  the  court,  in  A^an  Cleave  v.  Union  Casualty  &  Surety 
Co.,  82  AIo.  App.  668,  held  that  a  willful  misrepresentation  would  avoid 
the  policy,  if  it  related  to  a  fact  made  material  by  the  agreement  of 
the  parties.     Similarly  it  was  said,  in  Summers  v.  INIetropolitan  Life 
Ins.  Co.,  90  Mo.  App.  69L  that  the  statute  did  not  do  away  with  the 
defense   of   actual    fraud.      The    doctrine   of   the    Ashford    and   Van 
Cleave  Cases  has,  however,  been  overruled  in  later  cases.     Thus,  in 
Schuermann  v.  Union  Central  Life  Ins.  Co.,  165  Mo.  641,  65  S.  W. 
723,  the  court,  while  conceding  that  the  statute  did  not  restrain  the 
power  of  a  court  of  equity  to  relieve  against  actual  fraud,  regarded 
the  plea  that  the  applicant  knowingly  made  untrue  statements  as  a 
legal,  and  not  an  equitable,  defense,  thus  practically  announcing  the 
rule  that  the  statute  must  operate,  even  if   the  misrepresentation  is 
willful.     The  rule  was  subsequently  reiterated  in   Kern  v.   Supreme 
Council  American  Legion  of  Honor,   167  Mo.  471,  67   S.  W.  252. 
On  the  authoritv  of  these  cases  it  was  held,  in  Ashford  v.  Metropolitan 
Life  Ins.  Co.,  98  Mo.  App.  505,  72  S.  W.  712,  overruling  the  de- 
cision in  80  ^lo.  App.   638,  that  a  willfully  false  statement  was  no 
defense  to  the  policy,  if   it  related  to  a  matter  not  contributing  to 
the  death  of  the  insured." 

It  seems  the  Supreme  Court  recognizes  the  authority  of  a  court 
of  equity  to  cancel  the  policy  before  it  has  become  payable  by  the 
happening  of  the  event  insured  against  on  the  grounds  of  willful 
fraud,  which  generally  obtain  in  the  law  apart  from  the  statute,  but 
adheres  to  the  doctrine  that  after  the  death  of  the  insured  the  li- 
ability of  the  company  and  its  right  to  be  relieved  from  the  ob- 
ligation of  the  policy,  though  fraudulently  induced,  is  to  be  deter- 
mined under  the  rule  of  the  statute.  Schuermann  v.  Union  Cent. 
Life  Ins.  Co.,  165  Mo.  641,  65  S.  W.  723.  Indeed,  in  the  case 
cited,  the  defendant  appealed  to  the  chancellor  for  a  cancellation  of 
the  policy  on  the  grounds  that  the  insurance  was  obtained  by  the 
insured  through  false  statements  and  representations  known  to  him 
at  the  time  to  be  untrue,  by  incorporating  a  count  to  that  effect  in 
its  answer  to  a  suit  on  the  policy,  and  the  court  denied  the  right 
to  such  relief  after  the  cause  of  action  on  the  policy  had  accrued. 
The  averments  of  the  answer  in  that  case  as  reported  import  fraud 


WARRANTIES    DISTINGUISHED    FROM    REPRESENTATIONS  231 

in  the  inducement,  but  do  not  disclose  the  representations  to  have 
been  material  within  the  purview  of  the  statute. 

On  this  question  a  most  recent  case  may  be  cited  as  directly  in 
point.  A  study  of  defendant's  refused  instruction  No.  2  in  Keller  v. 
Home  Life  Ins.  Co.,  198  Mo.  440-453,  95  S.  W.  903,  and  the  re- 
marks of  the  court  therein  (page  462  of  198  Alo.,  and  page  909  of 
95  S.  W.),  will  reveal  the  thought  and  an  application  of  the  doctrine. 

It  is  entirely  clear  that  under  the  authorities  the  only  fraud  of  the 
insured,  Michael  J.  Lynch,  in  obtaining  the  insurance,  available  to 
defendant  in  a  suit  on  the  policy,  to  the  end  of  relieving  it  of  li- 
ability, is  such  fraudulent  statements  as  he  may  have  made,  which 
induced  it  to  issue  the  policy,  and  are  material  because  they  con- 
cerned a  matter  which  contributed  to  his  death.     *     *     *     Affirmed.-* 

2  4  Compare  Mutual  Life  Ins.  Co.  of  New  York  v.  Mullen,  ante,  p.  211.  See, 
also,  Cooley.  Briefs  on  the  Law  of  Insurance,  vol.  2,  p.  1189;  vol.  3,  p. 
1983. 


232  INSURANCE  AGENTS   AND   THEIR  POWERS 

INSURANCE  AGENTS   AND   THEIR   POWERS 

I.  The  Doctrine  of  Agency  in  Insurance  Law  ^ 

1.  In  Generai, 


BALDWIN  V.  CONNECTICUT  MUT.  LIFE  INS.  CO. 

(Supreme  Judicial  Court  of  Massachusetts,  1903.    182  Mass.  3S9,  65  N.  E.  837.) 

Action  by  Frank  E.  Baldwin,  as  administrator,  against  the  Connect- 
icut Alutual  Life  Insurance  Company.  There  was  judgment  for  de- 
fendant, and  plaintiff  brings  exceptions. 

Knowlton,  C.  J."  The  plaintiff  seeks  to  recover  $10,000  on  an  al- 
leged oral  contract  of  the  defendant  to  insure  the  life  of  his  intestate. 
He  introduced  evidence  tending  to  show  that  one  Cooper  was  the  gen- 
eral agent  of  the  defendant  company  for  Western  New  York,  who 
resided  and  had  his  place  of  business  at  Syracuse,  in  that  state ;  that 
Alvi  T.  Baldwin,  a  brother  of  the  plaintiff,  lived  in  Maysville,  N.  Y., 
doing  business  in  Rochester,  and  knew  Cooper  several  years  as  a  life 
insurance  agent  in  Syracuse ;  *  *  *  that  in  September,  1894,  the 
brother  met  Cooper  at  the  office  of  the  Baldwin  Bros.  Company  in 
Boston,  and  then  introduced  him  to  the  plaintiff's  intestate,  to  the 
plaintiff,  and  to  others,  as  the  general  agent  of  the  Connecticut  Mutual 
Life  Insurance  Company.  *  *  *  Cooper  stated  to  those  present 
"that  he  had  come  from  Syracuse  for  the  purpose  of  being  introduced 
and  writing  insurance  for  the  Connecticut  Mutual  Life  Insurance 
Company."  The  plaintiff's  evidence  tended  further  to  show  that  the 
plaintiff's  intestate,  the  plaintiff,  and  one  Daggett  made  appUcations 
for  insurance  in  the  defendant  company  on  that  day.  *  *  *  The 
witnesses  also  testified  that  Cooper  told  them  that  they  were  insured 
from  the  time  they  signed  the  applications.  None  of  them  was  ex- 
amined by  a  physician  until  the  next  day,  when  a  medical  examination 
of  each  was  made.  The  application  of  the  plaintiff's  intestate  was  sent 
to  the  defendant  company,  but  before  any  policy  was  made  he  died. 
The  suit  is  brought  on  the  alleged  agreement  of  the  agent  that  the 
plaintiff's  intestate  was  insured  from  the  time  of  his  signing  the  appli- 
cation. 

The  defendant  sets  up  a  variety  of  defenses.    It  says  first  that  there 
was  no  evidence  that  Cooper  had  authority  to  bind  it  by  such  an  oral 

1  For  discussion  of  principles,  see  Vance  on  Insurance,  §  108.     See,  also 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  p.  345  et  seq. 

2  Part  of  the  opinion  is  omitted. 


THE    DOCTRINE    OF   AGENCY    IN    INSURANCE    LAW  233 

contract  for  insurance  without  a  payment  of  money  or  an  examination 
by  a  physician.  It  invokes  St.  1894,  c.  522,  §  3,  which  makes  it  "unlaw- 
ful for  any  company  to  make  any  contract  of  insurance  upon  *  *  * 
lives  in  this  commonwealth,  or  with  any  resident  thereof,  or  for  any 
person  as  insurance  agent  or  insurance  broker  to  make,  negotiate, 
solicit  or  in  any  manner  aid  in  the  transaction  of  such  insurance,  un- 
less and  except  as  authorized  by  the  provisions  of  this  act" ;  also 
section  65  of  the  same  chapter,  which  forbids  life  insurance  companies 
to  make  any  "insurance,  guaranty,  contract  or  pledge  in  this  com- 
monwealth *  *  *  which  does  not  distinctly  state  the  amount  of 
benefits  payable,  the  manner  of  payment,  and  the  consideration  there- 
for"; also  section  68,  which  provides  that  "no  life  insurance  company 
doing  business  in  Massachusetts  shall  *  *  *  make  any  contract 
of  insurance  or  agreement  as  to  such  contract  other  than  as  plainly 
expressed  in  the  policy  issued  thereon";  also  section  68,  which  forbids 
life  insurance  companies  and  agents  paying  or  allowing,  "as  an  in- 
ducement to  insurance,  any  rebate  of  premium  payable  on  the  policy, 
or  any  special  favor  or  advantage  in  the  dividends,  or  other  benefit 
to  accrue  thereon,  or  any  valuable  consideration  or  inducement  what- 
ever, not  specified  in  the  policy  contract  of  insurance" ;  also,  sections 
77 ,  78,  and  84  of  this  chapter,  which  severally  provide  in  very  plain 
terms  that  foreign  insurance  companies  shall  not  do  business  in  this 
commonwealth  otherwise  than  through  an  agent  or  agents  who  are 
residents  of  the  commonwealth.  These  statutory  provisions  are  now 
found  in  Rev.  Laws,  c.  118. 

The  defendant,  in  answer  to  interrogatories,  after  saying  that  Coop- 
er was  its  general  agent  for  Western  New  York,  added  that  he  "had 
a  license  to  solicit  life  insurance  in  ^Massachusetts."  This  we  under- 
stand to  mean  that  he  was  permitted  or  licensed  by  the  defendant  to 
solicit  life  insurance  in  Massachusetts,  and  not  that  he  had  any  license 
from  the  authorities  here.  Upon  the  plaintiff's  testimony  and  the  ad- 
mitted facts,  he  was  not  a  resident  of  this  commonwealth,  but  resided 
in  Syracuse.  Under  the  statute,  therefore,  he  could  not  legally  rep- 
resent the  defendant  as  its  agent  to  make  a  contract  of  life  insurance 
in  this  commonwealth.  If  he  made  such  an  oral  contract  as  the  plain- 
tiff contends,  it  was  an  illegal  contract,  which  cannot  be  enforced.  In 
this  respect  the  case  comes  within  the  decisions  in  Claflin  v.  System 
Co.,  165  Mass.  501,  43  N.  E.  293,  52  Am.  St.  Rep.  528,  and  Insurance 
Co.  V.  Sawyer,  160  Mass.  413,  36  N.  E.  59. 

It  is  unnecessary  to  consider  the  other  defenses  relied  on  by  the  de- 
fendant under  the  statutes  above  referred  to.  It  is  proper,  however, 
to  add  that  in  another  particular  the  plaintiff  fails  to  prove  his  case. 
There  is  no  evidence  of  authority  on  the  part  of  Cooper,  except  the 
fact  that  he  was  the  defendant's  general  agent  for  Western  New  York, 
and  that  it  also  permitted  him  to  solicit  insurance  in  Massachusetts. 
In  no  way  did  the  defendant  hold  him  out  as  having  authority  bevond 
that  which  was  to  be  inferred  from  these  facts.    His  acts  and  declara- 


234  INSURANCE    AGENTS   AND   THEIR   POWERS 

tions  at  the  time  or  subsequently  are  not  competent  evidence  to  prove 
his  authority.  Nor  is  there  any  inference  that  a  general  agent  of  a 
life  insurance  company  for  a  particular  territory  has  authority  to  rep- 
resent the  company  in  other  territory,  which  presumably  is  assigned 
to  another  general  agent,  or  is  retained  by  the  company  in  its  own 
management.  It  is  well  known  that  life  insurance  companies  trans- 
act business  over  very  large  areas,  some  of  them  in  all  the  states  of 
this  country  and  in  different  foreign  countries.  A  general  agent  for 
a  specified  area  is  not  expected  to  exercise  authority  in  the  territory 
of  another  general  agent.  There  is  nothing  in  this  case  to  indicate 
that  Cooper  had  any  more  power  to  bind  the  company  in  Massachu- 
setts than  an  ordinary  soliciting  agent.  The  language  of  the  applica- 
tion signed  by  the  plaintiff's  intestate,  and  the  policy  of  insurance  in 
evidence,  issued  by  the  defendant  to  another  person,  as  well  as  the 
general  practice  of  life  insurance  companies,  tend  to  show  that  an 
ordinary  solicitor  of  a  life  insurance  company  has  no  authority  to 
make  such  unusual  contract  as  an  oral  agreement  for  life  insurance 
to  take  effect  immediately,  before  there  is  a  medical  examination,  and 
without  a  payment  of  the  premium  otherwise  than  by  a  promissory 
note.  We  do  not  intimate  that  the  term  "general  agent,"  as  applied  to 
representatives  of  life  insurance  companies,  implies  such  an  authority 
to  represent  the  company  as  would  cover  the  making  of  a  contract  of 
this  kind,  apart  from  the  statutory  restrictions. 

We  are  of  opinion  that  there  was  no  evidence  that  Cooper  was  au- 
thorized to  bind  the  defendant  by  the  alleged  oral  contract  made  in 
Massachusetts.     Exceptions  overruled. 


2.  Apparent  Powers 


RUGGLES  V.  AMERICAN  CENT.  INS.  CO.  OF  ST.  LOUIS. 

(Court  of  Appeals  of  New  York.  1889.     114  N.  Y.  415,  21  N.  E.  1000,  11 

Am.    vSt.   Rep.   674.) 

Action  by  James  H.  Ruggles  against  the  American  Central  Insur- 
ance Company,  upon  an  alleged  contract  of  fire  insurance.  Judgment 
for  plaintiff,  and  defendant  appeals. 

Brown,  J.^  *  *  *  ^  more  serious  question  is  presented  as  to 
whether  the  agreement  thus  made  was  binding  upon  the  company. 
At  the  close  of  the  testimony  the  counsel  for  the  defendant  asked  the 
court  to  dismiss  the  complaint,  upon  the  ground  that  it  appeared  that 
the  letter  appointing  Sedgwick  &  Hammond  agents  for  the  defendant 
limited  them  against  insuring  special  risks.     *     *     * 

3  Part  of  the  opinion  is  omitted. 


THE    DOCTRINE    OF    AGENCY    IN    INSURANCE    LAW  235 

The  request  to  charge  that,  if  the  jury  should  determine  that  the 
risk  was  special,  the  defendant  was  not  liable,  raised  no  other  or  dif- 
ferent question  than  that  presented  by  the  motion  to  dismiss  the  com- 
plaint, as  the  risk  was  conceded  to  have  been  a  special  one,  and  the 
jury  would  have  been  bound  so  to  find.  The  request  was,  therefore, 
equivalent  to  asking  for  a  direction  of  a  verdict  for  defendant.  The 
point  of  the  appellant's  contention  was  that  the  court  should  have  de- 
cided upon  the  letter  which  contained  the  agents'  delegation  of  au- 
thority that  they  possessed  no  power  to  bind  the  defendant  upon  a 
special  risk ;  and  this  question  is  the  most  serious  one  presented  upon 
this  appeal.  It  may  be  conceded  that  the  commission  of  authority  had 
not,  at  the  time  of  making  the  agreement,  reached  the  agents.  It  had, 
however,  been  mailed  from  St.  Louis,  as  the  letter  of  the  secretary  of 
the  company,  dated  October  13th,  refers  to  it  as  having  been  for- 
warded by  mail  on  that  day.  It  may  also  be  conceded  that  it  did  not 
reach  the  agents  until  October  20th,  the  day  after  the  fire,  as  Ham- 
mond in  his  letter  to  the  plaintiff,  under  date  of  October  21st,- speaks 
of  the  agents  not  having  power  to  bind  the  company,  "until  yester- 
day," and  Sedgwick  testified  that  the  two  letters  introduced  in  evidence 
were  the  only  communications  they  had  received  from  the  company 
with  reference  to  their  acting  as  agents  prior  to  the  fire,  which  occur- 
red on  October  19th.  The  evidence  upon  the  question  of  power  is, 
therefore,  to  be  found  entirely  in  the  two  letters  last  mentioned. 

The  first  of  these  letters  bears  date  October  11th,  and  was  written 
to  Sedgwick  &  Hammond  by  Air.  Van  Yalkenburgh,  a  general  agent 
of  the  company.  In  it  he  says:  "If  your  appointment  is  confirmed, 
your  jurisdiction  will  be  the  city  of  Brooklyn,  outside  the  shore  line; 
but  we  shall  expect  you  to  write  no  large  risks  for  us  until  you  know 
for  certain  that  we  are  not  on,  through  our  New  York  office.  As  we 
are  now  on  all  Brooklyn  specials  of  any  size  that  we  will  write,  please 
do  not  undertake  to  write  any  specials  for  us  at  present."  The  sec- 
ond letter  was  written  by  the  secretary  of  the  company  from  St.  Louis, 
dated  October  13th,  and  addressed  to  Sedgwick  &  Hammond.  It 
states:  "We  take  very  great  pleasure  in  forwarding  to  your  address 
by  mail  to-day  a  commission  of  authority  as  agents  of  this  company 
in  the  city  of  Brooklyn.  We  deem  it  unnecessary  to  enter  into  any 
detailed  instructions  as  to  the  conduct  of  our  business  at  your  agency, 
as  our  Mr.  \"an  Valkenburgh  has  written  you  upon  that  subject,"  etc. 
Whatever  authority  the  agents  had.  they  derived  from  these  letters. 
The  risk  was  a  special  one,  and  so  admitted  by  the  plaintifif  upon  the 
trial. 

Was  authority  to  insure  such  a  risk  withheld  from  the  agents?  We 
do  not  so  interpret  the  letters.  It  is  true  that  \^an  Valkenburgh  wrote 
that  the  agents  should  not  write  any  large  risks  until  they  knew  that 
the  company  was  not  on,  through  their  New  York  office,  and  should 
not  undertake  to  write  any  specials  for  the  company,  but  this  limited 
authoritv  is  not  confirmed  in  the  letter  from  the  company.     In  that 


236  INSURANCE    AGENTS    AND   THEIR   POWERS 

letter  the  authority  is  broadly  stated  to  be  "agents  of  this  company  in 
the  city  of  Brooklyn."  There  was  no  exception  in  the  territory  named, 
nor  limitation  as  to  the  character  of  the  risks  to  be  insured.  The 
other  expression  in  the  letter,  that  "we  deem  it  unnecessary  to  enter 
into  any  detailed  instructions  as  to  the  conduct  of  our  business  at  your 
agency,  as  our  Mr.  Van  Valkenburgh  has  written  you  upon  that  sub- 
ject," does  not  in  any  way  limit  the  agents'  power.  Its  plain  refer- 
ence is  to  the  manner  of  conducting  the  business,  and  not  to  the  au- 
thority to  be  exercised  by  the  agent.  That  this  view  is  the  one  enter- 
tained by  the  agents  is  plain  from  Hammond's  letter  to  the  plaintiff,, 
under  date  of  October  21st,  in  which  he  places  his  denial  of  the  ex- 
istence of  an  agreement  to  insure  on  the  fact  that  they  had  not,  at 
the  date  of  the  alleged  agreement,  received  their  commission  of  au- 
thority, and  not  at  all  upon  the  ground  that  such  a  contract  was  in 
excess  of  their  power. 

We  think,  therefore,  that  the  letter  of  October  13th,  fairly  inter- 
preted, constituted  Sedgwick  &  Hamn  nd  general  agents  of  the  com- 
pany, and  that  the  utmost  that  could  be  claimed  from  the  direction 
contained  in  Van  \^alkenburgh's  letter,  which  I  have  quoted,  was  that 
they  were  instructions  for  the  guidance  of  the  agent,  which  would 
in  no  way  affect  contracts  with  third  parties  having  no  notice  or 
knowledge  of  such  instructions.  A  general  agent  may  bind  his  prin- 
cipals by  an  act  within  the  scope  of  his  authority,  although  it  may 
be  contrary  to  his  special  instructions.  Story,  Ag.  §  733 ;  Walsh  v. 
Insurance  Co.,  73  N.  Y.  5 ;  Lightbody  v.  Insurance  Co.,  23  Wend. 
18;  Angell  v.  Insurance  Co.,  59  N.  Y.  171,  17  Am!  Rep.  322.  In 
Walsh  V.  Insurance  Co.  the  rule  is  stated  as  follows:  "Nor  would 
restriction  upon  the  power  of  an  agent,  not  known  to  persons  dealing" 
with  him,  limiting  the  usual  powers  possessed  by  agents  of  the  same 
character,  exempt  the  principal  from  responsibility  for  his  acts  and 
contracts  which  were  within  the  ordinary  scope  of  the  business  in- 
trusted to  him,  although  he  acted  in  violation  of  special  instructions." 
Lightbody  v.  Insurance  Co.  was  a  case  very  similar  to  the  case  under 
consideration.  The  plaintiff  owned  property  in  Utica,  upon  which  he 
procured  insurance  in  the  defendant  company  by  parol  agreement  with 
an  agent  in  Troy,  whose  authority  was  limited  to  "Troy  and  vicinity," 
and  who  was  denied  the  power  to  insure  special  risks.  The  plaintiff's 
property  was  a  special  risk.  The  supreme  court  held  the  agreement 
to  be  binding  on  the  defendant,  Bronson,  J.,  saying:  "Although  he 
[the  agent]  must  answer  to  his  principals  for  departing  from  their  pri- 
vate instructions,  he  clearly  bound  them  so  far  as  third  persons  deal- 
ing with  him  in  good  faith  are  concerned." 

The  manner  of  conducting  the  business  of  insurance  is  so  well 
known  that  a  person  may  reasonably  assume  that  one  having  the  ap- 
parent power  of  a  general  agent  is  not  limited  by  his  instructions  as 
to  the  class  of  risks  he  may  insure.  Corporations  organized  under  the 
laws  of  other  states,  and  having  their  general  officers  in  those  states,. 


CLASSES   OF   AGENTS    AND   THEIR    POWERS  237 

do  business  in  this  state  throii^^h  agents  who  are  intrusted  with 
policies  signed  by  the  officers  of  the  company,  and  which  become  bind- 
ing contracts  upon  the  indorsement  of  the  agent.  Such  agents  have 
power  to  make  original  contracts  of  insurance,  and  this  mode  of  con- 
ducting the  business  is  so  well  established  that  it  has  become  a  part 
of  the  common  knowledge  of  the  community,  and  judicial  notice  must 
be  taken  of  it.  Ellis  v.  Insurance  Co.,  50  N.  Y.  406,  407,  10  Am.  Rep. 
495.  Persons  dealing  with  such  agents  in  good  faith  have  the  right 
to  assume  that  they  possess  the  power  usually  exercised  by  that  class 
of  officers ;  and,  unless  the  limitation  on  their  authority  is  brought 
to  their  knowledge,  the  contracts  made  with  them  will  be  binding  upon 
the  company.    Walsh  v.  Insurance  Co.,  supra. 

There  was  nothing  in  the  transaction  between  Barker  and  Ham- 
mond, as  shown  by  the  evidence,  from  which  the  court  could  assume 
that  Barker  had  any  notice  of  any  limitation  on  the  agents'  power. 
At  the  time  of  making  the  agreement,  Hammond  showed  him  a  let- 
ter from  the  company,  and  it  having  been  proven  by  Sedgwick  that, 
prior  to  the  fire,  but  one  letter  from  the  company  was  received,  it 
must  be  assumed  that  the  letter  shown  was  that  of  October  13th.  As 
I  have  already  shown,  this  letter  constituted  Sedgwick  &  Hammond 
the  general  agents  for  the  city  of  Brooklyn,  and  no  one  in  reading  it 
could  have  supposed  that,  by  the  reference  to  the  Van  A'alkenburgh 
letter,  the  company  intended  to  place  any  limitation  upon  the  agents" 
power,  but  that  the  direction  contained  therein  related  to  the  man- 
ner of  conducting  the  company's  business  at  the  agency.  We  think 
the  contract  made  with  Hammond  was,  therefore,  binding  upon  the 
company. 

There  being  no  other  question  in  the  case  requiring  discussion,  the 
judgment  must  be  affirmed,  with  costs.     All  concur.* 


II.  Classes  of  Agents  and  Their  Powers  ' 


WESTERN  HOME  INS.  CO.  v.  HOGUE. 

(Supreme  Court  of  Kansas,  1889.     41  Kan.  524,  21  Pac.  641.) 

Commissioners'  decision. 

This  action  was  brought  by  S.  R.  Hogue  against  the  Western  Home 
Insurance  Company  to  recover  on  a  policy  of  fire  insurance.  There 
was  a  judgment  for  the  plaintiff,  and  defendant  brings  error. 

4  See,  also.  Hicks  v.  British  America  Assur.  Co.,  13  App.  Div.  444,  43  X. 
T.   Supp.  623   (1897). 

5  For  difcussion  of  principles,  see  Vance  on  Insurance.  §§  109,  110.  See, 
also,  Coolej',  Briefs  on  the  Law  of  Insurance,  vol.  1,  p.  345  et  se<i. 


238  INSURANCE    AGENTS   AND   THEIR   POWERS 

The  findings  of  fact  show :  That  upon  the  3d  day  of  August,  1885, 
the  defendant,  by  its  poHcy  of  insurance,  duly  signed  by  the  president 
and  secretary  of  the  defendant,  and  countersigned  by  the  duly-au- 
thorized agent  at  Spring  Hill,  Kan.,  did  insure  the  plaintiff  against 
loss  or  damage  by  fire  to  an  amount  not  to  exceed  $500,  on  his  gen- 
eral stock  of  hardware,  etc.  That  upon  the  3d  day  of  August,  1886, 
the  plaintiff  paid  to  G.  C.  Hunter,  then  the  duly-authorized  agent 
of  the  defendant  at  Spring  Hill,  Kan.,  the  sum  of  $20  as  a  consid- 
eration for  the  renewal  of  said  policy  for  one  year,  from  the  3d  day 
of  August,  1886,  at  noon,  to  the  3d  day  of  August,  1887,  at  noon, 
and  Hunter  issued  to  the  plaintiff  a  renewal  receipt.  Hunter  ap- 
propriated the  said  $20  to  his  own  use,  and  never  reported  any  re- 
newal of  said  policy  to  the  defendant,  and  the  officers  of  the  defend- 
ant never  knew  of  any  renewal  or  attempted  renewal  of  said  policy,  un- 
til after  the  fire.  Hunter  was  duly  authorized  by  said  defendant  insur- 
ance company  to  issue  policies  of  insurance  sent  to  him  in  blank  by  the 
company  ;  to  receive  the  premium  therefor,  and  renew  outstanding  and 
expiring  policies,  by  issuance  of  a  new  policy,  but  not  by  renewal  receipt. 
Plaintiff,  at  the  time  he  paid  said  $20  and  received  said  renewal  re- 
ceipt therefor,  believed,  and  had  reason  to  believe,  that  said  Hunter 
had  authority  to  issue  said  renewal  receipt,  and  had  no  notice  to  the 
contrary ;  defendant  having  held  out  said  Hunter  as  its  general  agent 
at  Spring  Hill,  Kan. 

Clogston,  c."  *  *  *  The  court  found  that  the  agent  who 
made  this  renewal  certificate  had  authority  to  renew  policies,  though 
not  in  the  manner  of  renewal  certificates,  but  by  issuing  new  policies. 
Now,  it  is  contended  by  the  plaintiff  that  the  agent,  not  being  author- 
ized to  issue  renewal  certificates,  and  the  fact  that  the  company  did 
not  so  renew  its  policies,  the  acts  of  this  agent  would  not  bind  the 
company.  Where  it  is  shown,  as  in  this  case,  that  the  agent  is  a  gen- 
eral agent,  and  is  so  held  out  to  the  community  in  which  he  does  busi- 
ness, and  third  parties  transact  business  with  him  as  such  agent,  in 
good  faith,  without  knowledge  of  his  limited  authority,  the  acts  of 
such  an  agent  must  bind  the  principal ;  and  where  the  agent  is  shown 
to  have  authority  to  renew  a  policy  in  any  manner,  and  he  does  re- 
new a  policy  in  a  manner  not  authorized  by  his  company,  but  that 
fact  is  not  known  to  the  insured,  the  agent's  renewal  must  bind  the 
company.  See  Insurance  Co.  v.  McLanathan,  11  Kan.  533;  Insur- 
ance Co.  V.  Wilkinson,  13  Wall.  222,  20  L.  Ed.  617.  In  Baubie  v. 
Insurance  Co.,  2  Dill.  156,  Fed.  Cas.  No.  1,111,  it  was  said:  "A  local 
agent  of  a  foreign  insurance  company,  empowered  to  solicit  insur- 
ance, receive  premiums,  and  to  issue  and  deliver  policies,  has,  in  fa- 
vor of  third  persons  dealing  with  him  in  good  faith,  and  without  no- 
tice of  any  restriction  on  his  authority,  power  to  bind  the  company  by 
*     *     *     a  parol  contract  to  renew  the  policy  from  time  to  time  dur- 

6  Part  of  tbe  opiniou  is  omitted  and  tlie  statement  of  facts  is  rewritten. 


CLASSES   OF   AGENTS    AND   THEIR    POWERS  239 

ing  plaintiff's  ownership  of  the  property."    It  is  therefore  recommend- 
ed that  the  judgment  of  the  court  below  be  affirmed. 

Per  Curiam.    It  is  so  ordered;   all  the  Justices  concurring. 


AMERICAN   EMPLOYERS'   LIABILITY   INS.   CO.   v.   BARR. 

(Ciraiit  Court  of  Appeals  of  United  States,  Eightli  Circuit,  1895.     68  Fed. 

873,  16  C.  C.'A.  51.) 

In  Error  to  the  Circuit  Court  of  the  United  States  for  the  District 
of  Colorado. 

Before  Caldwell,  Sanborn,  and  Thayer,  Circuit  Judges. 

Thayer,  Circuit  Judge. '^  This  writ  of  error  was  sued  out  by  the 
American  Employers'  Liability  Insurance  Company,  the  plaintiff  in 
error,  to  reverse  a  judgment  which  was  recovered  against  it  in  the 
circuit  court  of  the  L'nited  States  for  the  district  of  Colorado  on  an 
accident  policy  of  insurance.     *     *     * 

The  insured  sustained  certain  injuries  on  May  20,  1892,  by  falling 
from  a  platform  in  a  building  which  was  in  process  of  construc- 
tion in  the  city  of  Denver,  and  died  four  days  thereafter,  as  it  is  claim- 
ed, from  injuries  resulting  from  such  fall.  A  suit  was  brought  on 
the  policy  by  William  P.  Barr,  the  defendant  in  error,  to  whom,  un- 
der the  aforesaid  provisions  of  the  policy,  the  same  was  made  pay- 
able in  the  event  of  the  death  of  the  assured,  and  a  judgment  was 
recovered  against  the  defendant  company  for  the  sum  of  $5,626.58. 

One  of  the  principal  errors  assigned  is  the  action  of  the  trial  court 
in  sustaining  a  demurrer  to  the  second  defense  which  was  pleaded 
by  the  defendant  company.  That  defense  was,  in  substance,  as  fol- 
lows :  The  defendant  averred  that  it  held  itself  out  as  insuring  pre- 
ferred or  selected  risks  in  professional  and  mercantile  classes,  and 
that  it  did  not  hold  itself  out  as  insuring  persons  while  actually  en- 
gaged in  extrahazardous  employments,  such  as  "supervising  contrac- 
tor," in  which  employment  Cousley,  appears  to  have  been  engaged 
when  he  was  injured;  that  at  the  time  the  policy  in  suit  was  issued 
one  Francis  A.  Chapman  was  its  duly-authorized  agent  to  solicit 
insurance  in  its  behalf  in  the  state  of  Colorado,  "subject  to  and  in 
accordance  with  the  instructions,  terms,  and  conditions  contained  in 
applications  for  insurance,  prospectuses,  and  insurance  policies,  and 
business  forms,  and  regulations  adopted  and  prescribed  by  the  board" 
of  directors  and  the  president,  secretary  and  general  manager, 
*  *  *  and  that  said  Chapman  was  not  authorized  to  waive,  change, 
or  modify  any  of  said  terms  or  conditions ;  *  *  *  that  the  de- 
fendant company,  for  the  purpose  of  carrying  on  its  business  in  the 
state  of  Colorado,  within  the  limitations  aforesaid,  "furnished  its  said 
agent,  Francis  A.  Chapman,  with  printed  blanks  and  other  stationery 

7  Part  of  the  opinion  is  omitted. 


240  INSURANCE    AGENTS    AND   THEIR   POWERS 

reasonably  proper  and  necessary  to  carry  on  and  conduct  said  busi- 
ness" ;  that  on  May  6,  1892,  William  P.  Cousley  made  a  certain  writ- 
ten application  to  its  said  agent,  Chapman,  for  an  accident  policy 
of  insurance,  which  application  was  set  out  in  full  in  the  answer ; 
that,  according  to  the  established  mode  of  doing  business,  it  was  the 
duty  of  said  Chapman,  on  receipt  of  said  application,  to  transmit  the 
same  to  its  branch  office  in  the  city  of  Chicago,  and  thence  to  its  gen- 
eral office  in  the  city  of  New  York;  that  said  application  was  so  trans- 
mitted, but  that  it  failed  to  reach  New  York  until  after  the  as- 
sured had  sustained  the  injuries  on  account  of  which  he  ultimately 
died.     *     *     * 

It  is  somewhat  difficult  to  comprehend  the  precise  nature  of  the 
defense  intended  to  be  stated  in  the  foregoing  paragraph  of  the  an- 
swer. We  shall  assume,  however,  that  the  defendant  company  in- 
tended to  make  two  defenses :  First,  that  the  contract  was  not  fully 
consummated  in  the  lifetime  of  the  assured;  and,  second,  that,  if 
fully  consummated,  the  assured  was  guilty  of  such  a  concealment  of 
material  facts,  or  made  such  false  representations,  as  rendered  the 
contract  voidable  at  the  election  of  the  company. 

Conceding,  for  the  purposes  of  this  decision,  that  it  was  proper  to 
plead  both  of  the  aforesaid  defenses  in  a  single  paragraph  of  the  an- 
swer, and  that  it  was  not  necessary  to  state  the  defenses  separately, 
still  we  think  that  neither  of  them  was  well  pleaded.  It  is  clearly 
shown  by  the  plea  aforesaid,  and  by  other  portions  of  the  answer  as 
well,  that  Chapman  was  the  duly-authorized  agent  of  the  defendant 
company  to  solicit  insurance  in  its  behalf  in  the  state  of  Colorado; 
that  he  was  provided  with  such  policies,  applications,  and  other  print- 
ed blanks  as  were  necessary  to  conduct  an  insurance  business ;  that 
he  accepted  Cousley's  application  for  insurance,  executed  and  deliv- 
ered the  policy,  and  received  the  premium  thereon  for  one  year's  in- 
surance. This  made  the  negotiation  complete.  If  Chapman  disobeyed 
secret  instructions  which  he  had  received  from  the  company,  or  if 
he  departed  from  the  usual  and  ordinary  course  of  business,  in  de- 
livering the  policy  and  in  collecting  the  premium  before  Cousley's 
application  had  been  received  and  had  been  approved  by  the  home 
office  in  the  city  of  New  York,  the  assured  cannot  be  prejudiced  by 
such  misconduct  on  the  part  of  the  company's  agent. 

It  has  been  decided,  time  and  again,  that  when  an  insurance  com- 
pany appoints  an  agent  to  solicit  risks,  and  provides  him  with  printed 
forms  of  its  policies,  duly  signed  and  sealed  by  the  proper  officers  of 
the  company,  it  will  be  bound  by  a  policy  which  the  agent  sees  fit  to 
countersign  and  deliver,  unless  the  assured  has  notice,  when  the  pol- 
icy is  delivered,  that  the  agent  is  exceeding  his  powers  or  is  violating 
his  instructions.  Authority  to  solicit  risks  for  and  in  behalf  of  a  com- 
pany, coupled  with  possession  of  its  printed  forms  of  applications, 
and  policies  duly  signed  and  sealed,  vests  the  agent  thus  equipped 
with  an  apparent  authority  to  make  a  binding  contract  of  insurance 


CLASSES   OF   AGENTS   AND   THEIR   POWERS  241 

without  any  further  approval  of  the  risk  by  the  company.  Insurance 
Co.  V.  Wilkinson,  13  Wall.  222.  234,  235,  20  L.  Ed.  617 ;  Insurance  Co. 
V.  Snowden,  7  C.  C.  A.  264,  12  U.  S.  App.  704,  58  Fed.  342 :  Insur- 
ance Co.  V.  Robison,  7  C.  C.  A.  444,  19  U.  S.  App.  266,  58  Fed. 
723,  22  L.  R.  A.  325,  and  cases  there  cited. 

In  the  present  case  there  was  no  averment  in  the  answer  that 
Cousley  had  notice  that  his  policy  would  not  take  effect  until  his  ap- 
plication was  approved  by  the  home  office,  nor  was  there  any  aver- 
ment that  he  was  acquainted  with  a  mode  of  doing  business  on  the 
part  of  the  defendant  company  which  necessitated  an  approval  of  the 
application  by  the  home  office  before  the  contract  became  complete. 
He  had  a  right  to  presume  that  the  contract  took  effect  when  the 
policv  was  delivered  to  him  and  the  premium  was  paid,  and  that  Chap- 
man was  authorized  to  accept  the  risk  and  execute  the  contract. 

The  second  defense  above  mentioned,  which  is  suggested  by  the 
answer,  is  equally  without  merit.     *     *     *     Affirmed. 


O'BRIEN  V.  NEW  ZEALAND  INS.  CO. 

(Supreme  Court  of  California,   1895.     108  Cal.  227,  41  Pac.  298.) 

Action  by  Thomas  H.  O'Brien  against  the  New  Zealand  Insurance 
Company.    Judgment  for  plaintiff.     Defendant  appeals. 

Garoutte,  J.  This  is  an  action  upon  a  contract  of  fire  insurance, 
and  defendant  is  appellant,  as  is  usual  in  that  class  of  cases.  One 
Peters  was  defendant's  local  agent  in  the  town  of  Reedly,  Fresno 
county,  and  under  his  commission  as  agent  he  had  no  authority  to 
enter  into  a  contract  of  insurance.  But  he  was  appointed  subagent 
"to  receive  proposals  for  insurance,  and  fix  rates  of  premium,  and  to 
receive  money  for  policies  and  certificates  of  insurance." 

Upon  July  2,  1892,  plaintiff,  O'Brien,  made  a  written  application  to 
Peters,  upon  one  of  defendant's  blanks,  for  insurance  upon  his  saloon, 
building  and  fixtures.  This  application,  accompanied  by  a  letter  from 
Peters,  was  deposited  in  the  postoffice  July  5th.  addressed  to  defend- 
ant at  San  Francisco.  The  letter  referred  to  the  inclosed  application, 
with  the  suggestion  that  the  company  should  place  the  insurance,  if 
it  was  deemed  advisable.  The  plaintiff's  building  was  occupied  as  a 
liquor  saloon,  and  defendant  did  not  take  insurance  upon  saloons, 
and  the  agent,  Peters,  knew  this  fact.  When  the  application  was 
made,  the  agent  informed  plaintiff  that  he  was  insured  from  that  time. 
Upon  July  4th.  which  was  between  the  time  of  the  making  of  the 
application  and  the  time  when  the  application  was  mailed  to  defendant, 
the  property  w^as  destroyed  by  fire.  It  thus  appears  that  the  build- 
ing was  destroyed,  not  only  before  the  application  for  insurance  was 
passed  upon  by  the  defendant,  but  before  the  application  was  ever 
heard  of  by  the  company. 
CooLEY  Ins. — 16 


242  INSURANCE   AGENTS   AND   THEIR   POWERS 

As  suggested,  the  agent,  Peters,  had  no  authority  to  enter  into  a 
contract  of  insurance  with  plaintiff.  His  powers  did  not  go  to  that 
extent.  Under  a  commission  of  authority  in  all  material  respects 
similar  to  the  authority  possessed  by  Peters,  it  was  held  in  Stewart 
V.  Insurance  Co.,  102  Cal.  218,  36  Pac.  410,  that  the  agent  had  no 
actual  authority  to  enter  into  a  contract  of  insurance.  In  that  case 
it  was  an  application  for  the  renewal  of  a  policy,  and  the  court  said: 
"The  proposal  of  plaintiff  made  to  such  agent  for  a  renewal  of  said 
policy  was,  until  communicated  to  and  accepted  by  defendant,  nothing 
more  than  a  mere  offer  upon  the  part  of  plaintiff  to  renew  such  pol- 
icy." That  there  was  no  actual  contract  of  insurance  in  this  case,  as 
far  as  defendant  is  concerned,  is  apparent  at  a  glance,  for  the  con- 
tract could  only  be  made  with  the  defendant,  and  the  defendant  knew 
nothing  of  it.  The  defendant  had  the  right  to  reject  the  application 
when  presented:,  and  until  it  was  presented  and  granted  no  contract 
was  possible.  If  there  was  a  contract  of  insurance  in  force  from  July 
2d  until  the  application  reached  the  defendant,  then  it  was  equally 
in  force  after  that  time  and  during  the  entire  period  covered  by  the 
policy;  but  such  a  construction  would  deprive  the  defendant  of  the 
right  to  reject  unsatisfactory  applications,  and  place  the  power  of  con- 
tracting in  the  hands  of  agents  like  Peters,  a  result  diametrically  op- 
posed to  its  purposes  and  practices. 

Peters  was  not  only  lacking  in  actual  authority  to  enter  into  a  con- 
tract of  insurance  with  plaintiff,  but  the  evidence  fails  to  show  any 
ostensible  authority  in  him.  Ostensible  authority  is  such  as  a  princi- 
pal, intentionally  or  by  want  of  ordinary  care,  causes  or  allows  a 
third  person  to  believe  the  agent  to  possess.  Civ.  Code,  §  2317.  Cer- 
tainly in  this  case  the  company  did  not  intentionally  cause  plaintiff 
to  believe  that  Peters  had  authority  to  make  a  contract  of  insurance, 
and  there  is  not  a  word  in  the  evidence  to  indicate  a  want  of  ordinary 
care  upon  defendant's  part,  which  caused  or  allowed  plaintiff  to  be- 
lieve that  Peters  was  clothed  with  any  such  authority.  It  would  seem 
to  follow  inevitably  that,  this  agent  having  neither  actual  nor  osten- 
sible authority  to  make  a  contract  of  insurance,  plaintiff  must  fail  of 
recovery. 

The  agent,  Peters,  told  plaintiff  that  he  had  no  power  to  write  pol- 
icies, and  that  the  application  would  have  to  be  forwarded  to  de- 
fendant at  San  Francisco.  This  statement  would  indicate  that  Peters 
did  not  attempt  to  enter  into  a  contract  of  insurance  with  plaintiff, 
and  that  plaintiff  probably  so  understood  it.  If  this  were  all  the  evi- 
dence, there  could  hardly  be  a  question  about  it.  but  it  appears  that 
Peters,  at  the  time  of  the  application,  told  plaintiff  that  his  insurance 
would  begin  at  that  time.  While  this  statement  may  have  resulted  in 
misleading  plaintiff,  it  could  have  no  possible  binding  effect  upon  the 
company  defendant.  At  best,  it  was  but  the  agent's  conclusion  as  to 
the  legal  effect  of  the  transaction,  and  any  loss  suffered  by  plaintiff 
by  reason  of  this  mistake  of  the  agent  is  a  matter  to  be  settled  between 


LIMITATIONS   UPON    THE    POWERS   OF   AGENTS  243 

them.  A  reasonable  view  of  the  meaning  of  the  agent's  language 
would  seem  to  be  that  the  policy  would  take  effect  as  of  the  date  of 
the  application,  if  the  application  were  accepted,  for,  until  action  upon 
it  by  the  company,  it  was  impossible  to  say  whether  or  not  it  ever 
would  take  effect. 

It  is  attempted  to  bring  this  case  within  the  principle  declared  in 
Harron  v.  Insurance  Co.,  88  Cal.  16,  25  Pac.  982,  but  the  facts  do 
not  justify  it.  Borchers,  the  special  agent  of  the  company,  was  not 
authorized  to  enter  into  contracts  of  insurance.  He  had  no  more  au- 
thority in  this  regard  than  the  subagent,  Peters,  and,  not  having  power 
to  enter  into  contracts  himself,  he  necessarily  had  no  authority  to 
delegate  such  a  power  to  Peters.  His  appearance  upon  the  scene, 
pending  the  negotiations  for  this  insurance,  fails  to  strengthen  the 
plaintiff's  case.  Looking  at  the  case  from  all  sides,  we  think  it  would 
be  a  manifest  injustice  to  require  defendant  to  pay  the  loss  suffered 
by  plaintiff.  This  company  did  not  insure  saloon  buildings,  and  the 
application  would  most  probably  have  been  rejected,  as  far  as  defend- 
ant was  concerned,  upon  presentation. 

We  conclude  the  defendant  assumed  no  risk,  and  is  liable  for  no 
loss.  For  the  foregoing  reasons  the  judgment  and  order  are  reversed, 
and  the  cause  remanded. 


III.  Limitations  upon  the  Powers  of  Agents  * 
1.  Improper  Limitations  in  Generai, 


LAMBERTON  v.  CONNECTICUT  FIRE  INS.  CO. 

(Supreme  Court  of  Minnesota.  1888.     39  Minn.  129,  39  N.  W.  76,  1  L.  R. 

A.   222.) 

Dickinson,  J.^  The  plaintiff  recovered  a  verdict  in  this  action 
upon  a  contract  of  fire  insurance.  This  is  an  appeal  from  an  order 
refusing  a  new  trial.  The  construction  and  effect  of  the  following 
provisions  of  the  policy  are  to  be  considered :  "If  the  premises  here- 
by insured  are  or  shall  hereafter  become  vacated  or  unoccupied,  and 
so  remain  for  more  than  ten  days,  *  *  *  without  notice  to  the 
company  in  each  case,  and  consent  indorsed  hereon,  *  *  *  this 
policy  shall  be  void.  *  *  *  And  it  is  further  expressly  covenanted 
by  the  parties  hereto  that  no  officer,  agent,  or  representative  of  this 

8  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  114-117.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  3,  pp.  25S0-2592,  2607,  et 
seq. 

»  Part  of  the  opinion  is  omitted. 


244  INSURANCE    AGENTS   AND   THEIR   POWERS 

company  shall  be  held  to  have  waived  any  of  the  terms  and  condi- 
tions of  this  policy,  unless  such  waiver  shall  be  indorsed  hereon  in 
writing-."  Some  months  prior  to  the  destruction  of  the  premises  by 
fire  they  became,  and  thereafter  remained,  vacant;  the  assured  in 
the  mean  time  endeavoring  to  secure  a  suitable  tenant.  The  local 
agent  of  the  defendant  at  Winona,  where  the  property  was  situated, 
who  had  issued  this  policy,  knew  that  the  house  was  vacant  during 
all  of  this  time,  and  in  negotiations  with  the  assured  upon  this  subject 
he  treated  the  policy  as  still  continuing,  in  force;  so  that,  if  the  de- 
fendant was  bound  by  his  acts  in  this  particular,  it  would  be  estopped 
to  claim  that  its  liability  had  terminated.  He  did  not,  however,  no- 
tify the  company  of  the  fact,  nor  was  there  any  written  consent  that 
the  policy  should  remain  in  force. 

The  question  is  thus  presented  whether  the  conduct  of  the  agent 
affected  and  bound  the  company.  The  position  taken  on  the  part  of 
the  company  is  that  the  power  of  the  agent  to  bind  the  principal  in 
this  particular  was,  by  the  clause  found  at  the  close  of  the  foregoing 
extract  from  the  policy,  so  restricted  that  he  could  only  do  this  by  a 
written  consent  indorsed  on  the  policy;  and  that,  the  assured  being 
thus  advised  of  the  restrictions  upon  the  power  of  the  agent,  the  ac- 
tion of  the  latter  was  ineffectual  to  bind  the  company. 

It  is  an  important  consideration  that  this  policy  does  not  impose 
any  restriction  upon  the  power  of  any  particular  agent,  or  class  of 
agents ;   nor  does  it  limit  the  power  of  some  agents  by  conferring  au- 
thority exclusively  upon   others;    nor  does   it   prescribe  the  manner 
in  which  alone  a  particular  agent  or  class  of   agents  shall  exercise 
their  authority.    We  do  not,  therefore,  express  any  opinion  concerning 
the  eft'ect  of  such  stipulations.     The  restriction  here  is  so  broad  that 
it  applies  alike  to  every  "officer,  agent,  or  representative  of  this  com- 
pany;"   and,   as  a  corporation  can  only   act  through   such  agencies, 
the  substance  of  the  provision  under  consideration  is  that  the  company 
shall  not  be  held  to  have  waived  any  of  the  terms  or  conditions  of 
the  policy,  unless  its  waiver  be  expressed  by  a  written  indorsement 
on  the  policy.    That  is  to  say,  in  other  words,  that  one  of  the  parties 
to  a  written  contract,  which  is  not  required  by  law  to  be  in  writing, 
cannot   subsequent   to  the   making  of  the   contract,   waive,   by  parol 
agreement,   provisions  which  had  been  incorporated   in  the  contract 
for  his  benefit.     A  contracting  party  cannot   so  tie  his  own  hands, 
so  restrict  his  own  legal  capacity  for  future  action,  that  he  has  not 
the  power,  even  with  the  assent  of  the  other  party,  to  bind  or  obli- 
gate himself  by  his  further  action  or  agreement  contrary  to  the  terms 
of  the  written  contract.     Insurance  Co.  v.  Earle,  33  :\Iich.  143.     This 
is  self-evident. 

The  clause  of  this  policy  relied  upon,  as  expressly  restricting  the 
power  of  the  agent  whose  conduct  is  here  in  question,  is  of  that 
character.     If  it  is  effectual  at  all,  as  a  limitation  of  the  power  of 


LIMITATIONS   UPON    THE    POWERS    OF   AGENTS  245 

future  action,  it  limits  the  power  of  every  agent,  officer,  and  repre- 
sentative of  the  company,  and  hence,  practically,  that  of  the  corpora- 
tion. It  is  no  more  applicable  to  this  particular  agent  than  to  all  of 
those  to  whom  the  conduct  of  the  affairs  of  the  corporation  is  com- 
mitted. In  that  board  scope,  and  as  applicable  to  all  the  representa- 
tives of  the  corporation,  it  cannot  be  enforced  so  as  to  render  inop- 
erative such  subsequent  action  or  agreement  of  corporate  agents  as 
would,  if  it  were  not  for  this  clause  in  the  contract,  be  deemed  the 
effectual  action  or  agreement  of  the  corporation.  A  more  restricted 
application  of  this  clause,  making  it  to  refer  to  this  particular  agent, 
or  to  any  particular  class  of  agents  or  officers,  cannot  be  made ;  nor 
can  the  clause  in  the  former  part  of  the  above  extract  from  the  policy, 
as  to  the  effect  of  vacancy  "without  notice  to  the  company  and  con- 
sent indorsed  hereon,"  be  construed  as  a  limitation  upon  the  power  of 
any  particular  agent  or  class  of  agents.  If  it  applies  to  any  agent  or 
officer,  it  does  to  all ;  and  if  such  a  stipulation  is  not  effectual  to 
limit  the  legal  capacity  of  the  corporation  as  to  its  future  action,  it 
does  not  limit  its  capacity  to  act  by  its  agents.  The  company,  then, 
was  legally  capable,  acting  through  its  proper  agents,  of  waiving  its 
right  to  treat  the  policy  as  of  no  further  binding  force  by  reason  of 
the  vacancy ;  and  it  could  also  waive  compliance  with  that  part  of  the 
same  provision  which  related  to  the  consent  being  indorsed  on  the 
policy. 

Confessedly,  the  agent  whose  conduct  is  in  question,  had  authority 
to  give  such  consent  by  indorsing  the  same  upon  the  policy.  When, 
in  negotiating  upon  this  subject  with  the  assured,  he  did  consent,  as  is 
established  by  the  verdict  of  the  jury,  he  was  acting  as  the  agent  of 
the  company.  His  action  was  the  action  of  the  company ;  andi  the 
insured  having  been  led  to  understand,  as  the  agent  seems  to  have 
done,  that  the  contract  should  remain  in  force  until  further  action 
should  be  taken,  the  company  is  now  estopped,  as  by  its  own  conduct, 
to  claim  the  contrary. 

This  conclusion  finds  sufficient  support  in  the  following  decisions, 
and  in  others,  although  we  are  aware  that  there  are  decisions  to  the 
contrary.  Insurance  Co.  v.  Earle,  33  Mich.  143 ;  Y\e\e  v.  Insurance 
Co.,  26  Iowa,  9,  96  Am.  Dec.  83 ;  Young  v.  Insurance  Co.,  45  Iowa, 
377,  24  Am.  Rep.  784;  Insurance  Co.  v.  McCrea,  8  Lea  (Tenn.) 
513,  41  Am.  Rep.  647;  Von  Bories  v.  Insurance  Co.,  8  Bush  (Ky.) 
133;  Insurance  Co.  v.  Gusdorf,  43  Md.  506;  Insurance  Co.  v.  Nor- 
ton, 96  U.  S.  234,  24  L.  Ed.  689 ;  Stolle  v.  Insurance  Co.,  10  W.  Va. 
546,  27  Am.  Rep.  593;  Carrugi  v.  Insurance  Co.,  40  Ga.  135,  2  Am. 
Rep.  567;  Wakefield  v.  Insurance  Co.,  50  Wis.  532,  7  N.  W.  647; 
Whited  V.  Insurance  Co.,  76  N.  Y.  415,  32  Am.  Rep.  330;  Morrison 
v.  Insurance  Co.,  69  Tex.  353,  6  S.  W.  605,  5  Am.  St.  Rep.  62.  The 
order  refusing  a  new  trial  is  affirmed. 


246  INSURANCE   AGENTS  AND  THEIR   POWERS 


2.  Stipulation  that  Agent  Taking  Application  is  Agent  of 

Insured 


KANSEL  V.  MINNESOTA  FARMERS'  MUT.  FIRE  INS.  ASS'N. 

(Supreme  Court  of  Minnesota,  1883.     31  Minn.  17,  16  N.  W.  430,  47  Am. 

Rep.  776.) 

Mitchell,  J.^**  1.  On  principle,  as  well  as  from  considerations  of 
public  policy,  agents  of  insurance  companies  authorized  to  procure 
applications  for  insurance,  and  to  forward  them  to  the  companies  for 
acceptance,  must  be  deemed  the  agents  of  the  insurers  and  not  of 
the  insured  in  all  that  they  do  in  preparing  the  applications,  or  in 
any  representations  they  may  make  to  the  insured  as  to  the  character 
or  effect  of  the  statements  therein  contained.  This  rule  is  rendered 
necessary  by  the  manner  in  which  business  is  now  usually  done  by 
the  insurers.  They  supply  these  agents  with  printed  blanks,  stimu- 
late them  by  the  promise  of  liberal  commissions,  and  then  send  them 
abroad  in  the  community  to  solicit  insurance.  The  companies  employ 
them  for  that  purpose,  and  the  public  regard  them  as  the  agents 
of  the  companies  in  the  matter  of  preparing  and  filling  up  these  ap- 
plications— a  fact  which  the  companies  perfectly  understand.  The 
parties  who  are  induced  by  these  agents  to  make  applications  for 
insurance  rarely  know  anything  about  the  general  officers  of  the  com- 
pany, or  its  constitution  and  by-laws,  but  look  to  the  agent  as  its  full 
and  complete  representative  in  all  that  is  said  or  done  in  regard  to 
the  application.  And  in  view  of  the  apparent  authority  with  which 
the  companies  clothe  these  solicitors,  they  have  a  perfect  right  to 
consider  them  such.  Hence,  where  an  agent  to  procure  and  forward 
applications  for  insurance,  either  by  his  direction  or  direct  act,  makes 
out  an  application  incorrectly,  notwithstanding  all  the  facts  are  cor- 
rectly stated  to  him  by  the  applicant,  the  error  is  chargeable  to  the 
insurer  and  not  to  the  insured.  Ins.  Co.  v.  Mahone,  21  Wall.  152, 
22  L.  Ed.  593;  Ins.  Co.  v.  Wilkinson,  13  Wall.  222,  20  L.  Ed.  617; 
Alalleable  Iron  Works  v.  Ins.  Co.,  25  Conn.  465 ;  Hough  v.  Ins.  Co., 
29  Conn.  10,  76  Am.  Dec.  581 ;  Woodbury  Savings  Bank,  etc.,  Ass'n 
v.  Ins.  Co.,  31  Conn.  517;  Miner  v.  Ins.  Co.,  27  Wis.  693,  9  Am. 
Rep.  479 ;  Winans  v.  Ins.  Co.,  38  Wis.  342 ;  Rowley  v.  Ins.  Co.,  36 
N.  Y.  550;  Brandup  v.  Ins.  Co.,  27  Minn.  393,  7  N.  W.  72)3 ;  2 
Am.  Lead.  Cas.  (5th  Ed.)  917  et  seq. ;  Wood,  Ins.  c.  12;  May,  Ins. 
§  120. 

2.  After  the  courts  had  generally  established  this  doctrine,  many 
of  the  insurance  companies,  in  order  to  obviate  it,  adopted  the  in- 

10  Part  of  tlie  opinion  is  omitted. 


LIMITATIONS   UPON   THE    POWERS    OF   AGENTS  247 

I 

genious   device  of   inserting  a   provision   in  the  policy  that   the   ap- 
plication, by  whomsoever  made,  whether  by  the  agent  of  the  com- 
pany or  any  other  person,  shall  be  deemed  the  act  of  the  insured 
and  not  of  the  insurer.     But,  as  has  been  well  remarked  by  another 
court,  "there  is  no  magic  in  mere  words  to  change  the  real  into  the 
unreal.     A  device  of  words  cannot  be  imposed  upon  a  court  in  place 
of  an   actuality  of   fact."     If   corporations   are   astute   in  contriving 
such  provisions,  courts  will  take  care  that  they  shall  not  be  used  as 
instruments  of   fraud   or   injustice.     It  would  be   a  stretch  of   legal 
principles   to  hold  that  a  person  dealing  with   an   agent,   apparently 
clothed  with  authority  to  act  for  his  principal  in  the  matter  in  hand, 
could  be  affected  by  notice,  given  after  the  negotiations  were  com- 
pleted,  that  the   party   with   whom  he  had   dealt   should  be   deemed 
transformed  from  the  agent  of  one  party  into  the  agent  of  the  other. 
To  be  efficacious,  such  notice  should  be  given  before  the  negotiations 
are  completed.     The  application  precedes  the  policy,  and  the  insured 
cannot  be  presumed  to  know  that  any  such  provision  will  be  inserted 
in  the  latter.     To  hold  that  by  a  stipulation,  unknown  to  the  insured 
at  the  time  he  made  the  application,  and  when  he  relied  upon  the 
fact  that  the  agent  was  acting  for  the  company,  he  could  be  held 
responsible  for  the  mistakes  of  such  agent,  would  be  to  impose  bur- 
dens upon  the  insured  which  he  never  anticipated.     Hence  we  think 
that   if  the  agent  was  the  agent  of  the  company  in   the  matter  of 
making  out  and  receiving  the  application,  he  cannot  be  converted  into 
the   agent  of  the  insured  by  merely  calling  him   such  in  the  policy 
subsequently  issued.     Neither  can  any  mere  form  of  words  wipe  out 
the  fact  that  the  insured  truthfully  informed  the  insurer,  through  its 
agent,  of  all  matters  pertaining  to  the  application  at  the  time  it  was 
made.     We  are  aware  that  in  so  holding  we  are  placing  ourselves 
in  conflict  with  the  views  of  some  eminent  courts.     But  the  conclu- 
sion we  have  reached  is  not  without  authority  to  sustain  it,  and  is, 
as    we   believe,    sound    in   principle,    and    in    accordance    with    public 
policy.    Wood,  Ins.  §  139;    Alay,  Ins.  §  140;    Com.  Ins.  Co.  v.  Ives, 
56  111.  402;    Cans  v.  St.  Paul  F.  &  M.  Ins.  Co.,  43  Wis.   108,  28 
Am.  Rep.  535;    Columbia  Ins.  Co.  v.  Cooper,  50  Pa.  331. 

3.  It  is  contended  by  respondent  that  there  is  a  distinction  in  this 
regard  between  "stock"  and  "mutual"  insurance  companies ;  that  the 
difference  in  the  character  of  the  companies  makes  a  difference  in 
the  relative  duties  of  the  applicant  and  the  company,  and  the  authority 
of  the  agents  employed ;  that  in  the  case  of  a  mutual  company  the 
application  is  in  effect  not  merely  for  insurance,  but  for  admission 
to  membership. — the  applicant  himself  becoming  a  member  of  the 
company  upon  the  issue  of  the  policy.  By  some  courts  a  distinction 
in  this  respect  is  made  between  the  two  classes  of  companies.  This 
distinction  is  usually  based  upon  the  ground  that  the  stipulations 
held  binding  upon  the  insured  are  contained  in  the  charter  or  by- 
laws of  the  company,  and  that  a  person  applying  for  membership  is 


248  INSURANCE   AGENTS   AND   THEIR   POWERS 

conclusively  bound  by  the  terms  of  such  charter  and  by-laws.  Such 
is  not  this  case,  for  the  stipulations  claimed  to  bind  the  insured  are 
only  in  the  policy.  But,  so  far  as  concerns  the  questions  now  under 
consideration,  we  fail  to  see  any  distinction  between  the  two  kinds  of 
companies,  and  we  feel  confident  that  the  average  applicant  for  in- 
surance is  rarely  aware  of  any.  It  is  true  that  in  the  case  of  a  mu- 
tual company  the  insured  becomes  in  theory  a  member  of  the  com- 
pany upon  the  issue  of  the  policy.  But  in  applying  and  contracting 
for  insurance  the  applicant  and  the  company  are  as  much  two  dis- 
tinct persons  as  in  the  case  of  a  stock  company,  and  we  see  no 
reason  for  holding  the  agent  who  takes  the  application  any  less  the 
agent  of  the  insurer  in  the  one  case  than  in  the  other.  The  member- 
ship does  not  begin  until  the  policy  is  issued.  As  to  all  previous 
negotiations  the  agent  acts  only  for  the  company.  Columbia  Ins.  Co. 
V.  Cooper,  supra;    May,  Ins.  §§  139  et  seq.     *     *     *     Reversed.^^ 


3.  Stipulation  That  Insurer  Shall  Not  be  Charged  with 

Knowledge  of  Agent 


STERNAMAN  v.  METROPOLITAN  LIFE  INS.  CO. 

(Court  of  Appeals  of  New  York,  1902.     170  N.  Y.  13,  62  N.  E.  763,  57  L.  R, 

A.  318,  88  Am.  St.  Rep.  625. 

Action  by  Olive  A.  Sternaman  against  the  Metropolitan  Life  In- 
surance Company.  From  a  judgment  of  the  appellate  division  (49 
App.  Div.  473,  63  N.  Y.  Supp.  674)  affirming  a  judgment  in  favor 
of  defendant  entered  on  a  verdict  directed  by  the  court,  plaintifif 
appeals. 

This  action  was  brought  to  recover  the  sum  of  $1,000,  alleged  to 
be  due  on  a  policy  of  insurance  issued  by  the  defendant  to  the  plaintiff, 
as  beneficiary,  upon  the  life  of  her  husband,  George  H.  Sternaman. 
The  policy  recites  that  the  promise  to  insure  was  made  in  considera- 
tion of  the  statements  contained  in  the  application,  all  of  which  are 
referred  to  as  warranties,  and  made  a  part  of  the  contract.  The 
application  consists  of  two  parts,  A  and  B.  Part  A,  entitled,  "Ap- 
plication to  the  Metropolitan  Life  Insurance  Company,"  consists  of 
questions  relating  to  the  age,  occupation,  family  history,  etc.,  of  Mr. 
Sternaman,  all  of  which  were  truthfully  answered.  At  the  close  of 
these  questions  and  answers  there  appeared  the  following:  "It  is 
hereby  declared,  agreed,  and  warranted  by  the  undersigned  that  the 
answers  and  statements  contained  in  the  foregoing  application,  and 

11  See,  also,  tbe  following  case,  Sternaman  v.  Metropolitan  Life  Ins.  Co. 


LIMITATIONS   UPON    THE    POWERS    OF   AGENTS  249 

those  made  to  the  medical  examiner,  as  recorded  in  parts  A  and  B 
of  this  sheet,  together  with  this  declaration,  shall  be  the  basis  and 
become  part  of  the  contract  of  insurance  with  the  jMetropolitan  Life 
Insurance  Company;  that  they  are  full  and  true  and  are  correctly 
recorded,  and  that  no  information  or  statement  not  contained  in  this 
application  and  in  the  statements  made  to  the  medical  examiner,  re- 
ceived or  acquired  at  any  time  by  any  person,  shall  be  binding  upon 
the  company,  or  shall  modify  or  alter  the  declaration  and  warranties 
made  therein ;  that  the  persons  who  wrote  in  the  answers  and  state- 
ments were  and  are  our  agents  for  the  purpose,  and  not  the  agents 
of  the  company,  and  that  the  company  is  not  to  be  taken  to  be 
responsible  for  its  preparation,  or  for  anything  contained  therein  or 
omitted  therefrom;  that  any  false,  incorrect,  or  untrue  answer,  any 
suppression  or  concealment  of  facts  in  any  of  the  answers,  any  vio- 
lation of  the  covenants,  conditions,  or  restrictions  of  the  policy,  any 
neglect  to  pay  the  premium  on  or  before  the  date  it  becomes  due, 
shall  render  the  policy  null  and  void,  and  forfeit  all  payments  made 
thereon."     *     *     * 

Vann,  J.^^  The  decision  of  this  appeal  turns  substantially  upon 
the  following  question:  When  an  applicant  for  life  insurance  makes 
truthful  answers  to  all  questions  asked  by  the  medical  examiner,  who 
fails  to  record  them  as  given,  and  omits  an  important  part,  stating 
that  it  is  unimportant,  can  the  beneficiary  show  the  answers  actually 
given,  in  order  to  defeat  a  forfeiture  claimed  by  the  insurer  on  ac- 
count of  the  falsity  of  the  answers  as  recorded,  even  if  it  was  agreed 
in  the  application  that  the  medical  examiner,  employed  and  paid  by 
the  insurer  only,  should  not  be  its  agent,  but  solely  the  agent  of 
the  insured? 

The  power  to  contract  is  not  unlimited.  While,  as  a  general  rule, 
there  is  the  utmost  freedom  of  action  in  this  regard,  some  restric- 
tions are  placed  upon  the  right  by  legislation,  by  public  policy,  and 
by  the  nature  of  things.  Parties  cannot  make  a  binding  contract  in 
violation  of  law  or  of  public  policy.  They  cannot  in  the  same  in- 
strument agree  that  a  thing  exists,  and  that  it  does  not  exist,  or 
provide  that  one  is  the  agent  of  the  other,  and  at  the  same  time, 
and  with  reference  to  the  same  subject,  that  there  is  no  relation  of 
agency  between  them.  They  cannot  bind  themselves  by  agreeing  that 
a  loan  in  fact  void  for  usury  is  not  usurious,  or  that  a  copartnership 
which  actually  exists  between  them  does  not  exist.  They  cannot 
by  agreement  change  the  laws  of  nature  or  of  logic,  or  create  re- 
lations, physical,  legal,  or  moral,  which  cannot  be  created.  In  other 
words,  they  cannot  accomplish  the  impossible  by  contract. 

The  parties  to  the  policy  in  question  could  agree  that  the  person 
who  filled  out  part  A  of   the  application  was  the   agent  of  the  in- 

12  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  abridged 
from  that  in  the  official  report. 


250  INSURANCE    AGENTS   AND   THEIR    POWERS 

sured  and  not  of  the  company.  There  is  a  difference  in  the  nature 
of  the  work  of  filling  out  the  blank  to  be  signed  by  the  insured, 
and  that  of  filling  out  the  blank  furnished  for  the  use  of  the  medical 
examiner.  The  former  is  the  work  of  the  insured,  and  may  be  done 
as  well  by  one  person  as  by  another.  He  may  do  it  himself,  or 
appoint  an  agent  to  do  it  for  him.  It  is  quite  different,  however,  with 
the  work  of  the  medical  examiner,  because  that  requires  professional 
skill  and  experience  and  the  insurer  permits  it  to  be  done  only  by 
its  own  appointee.  The  insured  can  neither  do  that  work  himself, 
nor  appoint  a  physician  to  do  it,  because  the  insurer  very  properly 
insists  upon  making  the  selection  itself.  The  medical  examiner  was 
selected,  employed,  and  paid  by  the  company.  The  insured  had  noth- 
ing to  do  with  him,  except  to  submit  to  an  examination  by  him,  as 
the  expert  of  the  company,  and  to  answer  the  questions  asked  by 
him  in  behalf  of  the  company.  This  he  was  forced  to  do  in  order 
to  procure  insurance ;  for  the  company  required  him  to  undergo  a 
medical  examination  by  an  examiner  selected  and  instructed  by  itself, 
before  it  would  act  upon  his  application  for  a  policy.  He  could 
neither  refuse  to  be  examined,  nor  select  the  examiner,  and  he  was 
not  responsible  if  the  latter  was  negligent  or  unfit  for  the  duty  as- 
signed to  him.  He  could  not  direct  or  control  him,  but  the  com- 
pany could  and  did ;  for  it  required  him  to  make  the  examination, 
fill  out  part  B  of  the  application  blank,  and  report  the  facts  with 
his  opinion.  The  insured  made  no  contract  with  the  examiner,  and 
was  under  no  obligation  to  pay  him  for  his  services.  The  company, 
however,  made  a  contract  with  him  to  do  certain  work  for  it,  and 
agreed  to  pay  him  for  the  work  when  done. 

As  between  the  examiner  and  the  insured,  the  relation  of  principal 
and  agent  did  not  exist,  while,  as  between  the  examiner  and  the 
company,  that  relation  did  exist  by  operation  of  law ;  yet  it  is 
claimed  that,  as  between  the  insured  and  the  company,  the  examiner 
was  the  agent  of  the  former  only,  because  he  had  so  agreed,  not 
with  the  examiner,  but  with  the  company  itself.  Under  the  circum- 
stances, an  agreement  that  the  physician  was  the  agent  of  the  in- 
sured was  like  an  agreement  that  the  company  or  its  president  was  his 
agent.  It  was  in  contradiction  of  every  act  of  the  parties  and  of 
every   fact  known  to  either.     The   law,   when   applied   to  the   facts, 

made  the  physician  the  agent  of  the  company,  and  not  of  the  insured. 
*     *     * 

An  agency  is  created  by  contract,  express  or  implied.  It  "is  a 
legal  relation  by  virtue  of  which  one  party  (the  agent)  is  employed 
and  authorized  to  represent  and  act  for  the  other  (the  principal)  in 
business  dealings  with  third  persons.  The  distinguishing  features  of 
the  agent  are  his  representative  character  and  his  derivative  au- 
thority." Mechem,  Ag.  §  1 ;  Story,  Ag.  §  3.  "To  constitute  agency 
there  must  be  consent  both  of  principal  and  of  agent."  Whart.  Ag.  §  1. 
What    was   the   contract   between   the    company    and   the   examiner? 


LIMITATIONS   UPON    THE   POWERS   OF   AGENTS  251 

The  defendant,  beings  a  corporation,  could  act  only  through  agents. 
Having  some  work  to  do  in  the  form  of  a  medical  examination,  it 
requested  Dr.  Langley  to  do  it.  It  created  the  relation  of  agency  be- 
tween him  and  itself  by  employing  him,  paying  him,  etc.  It  alone 
could  discharge  him,  and  to  it  alone  was  he  responsible  for  disobed- 
ience or  negligence.  It  could  control  his  conduct  by  any  reasonable  in- 
structions, and  hold  him  liable  if  he  violated  them.  It  prescribed  cer- 
tain questions  that  he  should  ask,  and  required  him  to  take  down  the 
answers  in  a  blank  prepared  by  itself.  It  could  sue  him  if  he  did 
not  do  it  properly,  and  he  could  sue  the  company  if  it  did  not  pay 
him  for  doing  it.  Thus  we  have  an  agency  between  the  company 
and  the  examiner  established  by  mutual  agreement,  with  the  right 
on  the  one  hand  to  instruct,  to  discharge,  and  to  hold  liable  for  de- 
fault, and  on  the  other  to  compel  payment  for  services  rendered. 
Hence  what  the  examiner  did  in  the  course  of  his  employment  the 
company  did,  and  what  he  knew  from  discovery  while  acting  for  it 
the  company  knew. 

What  was  the  contract  between  the  insured  and  the  examiner? 
None  whatever.  The  insured  did  not  employ  the  examiner,  and  the 
examiner  did  not  agree  to  work  for  him.  Neither  was  under  any 
legal  obligation  or  liability  to  the  other.  The  insured  could  not 
instruct  the  doctor,  nor  discharge  him,  nor  sue  him  for  negligence, 
and  the  doctor  could  not  sue  the  insured  for  compensation.  The 
relation  of  principal  and  agent  did  not  exist  between  them,  either 
"by  virtue  of  any  contract  or  by  operation  of  law. 

What  was  the  contract  between  the  insured  and  the  insurer?  With 
the  relations  above  described  as  existing  between  the  insurer  and  the 
examiner  in  full  force,  and  in  the  absence  of  any  legal  relation  be- 
tween the  examiner  and  the  insured,  an  attempt  was  made  by  the 
insurer,  by  an  agreement  imposed  upon  the  insured,  to  subvert  the 
relation  of  its  own  examiner  to  itself,  and  establish  a  relation  be- 
tween him  and  the  insured,  without  the  consent  of  either  given  to 
the  other.  There  was  no  tripartite  contract.  While  the  contract  be- 
tween the  doctor  and  the  company  was  still  in  existence,  the  latter 
agreed  with  a  third  party  only  that  that  contract  did  not  in  fact 
exist  between  the  two  parties  who  made  it,  but  did  exist  between 
two  parties  who  did  not  make  it.  This  was  not  possible  by  any 
form  of  words,  any  more  than  to  make  black  white,  or  truth  false- 
hood. We  think  that  the  medical  examiner  was  the  agent  of  the 
defendant  in  making  the  examination  of  the  insured,  recording  his 
answers,  and  reporting  them  to  the  company. 

Sound  public  policy  prohibits  the  company  from  stipulating  for  im- 
munity from  the  consequences  of  its  own  negligence,  or,  what  is 
the  same  thing,  the  negligence  of  its  agent.  Rathbone  v.  Railroad 
Co.,  140  N.  Y.  48,  35  N.  E.  418.  The  manner  of  conducting  the 
examination  was,  of  necessity,  intrusted  to  the  judgment  of  the  medi- 
>cal  examiner  to  a  great  extent.     His  judgment  might  influence  him 


252  INSURANCE   AGENTS   AND   THEIR    POWERS 

to  take  down  the  answers  in  a  general  or  in  a  particular  way.  In 
exercising  his  judgment  he  determined  that  certain  answers  were  too 
trivial  to  be  recorded.  In  making  that  determination  he  was  not 
acting  for  the  insured,  but  for  the  company;  for  it  had  furnished 
him  with  a  blank,  and  had  invested  him  with  power  to  take  down 
the  answers,  and  hence  with  power  to  decide  how  they  should  be 
taken  down.  If  he  was  negligent  or  failed  to  do  his  duty  in  this 
regard,  the  company  could  not,  by  an  agreement  made  in  advance,, 
cast  the  burden  upon  the  insured,  who  did  not  select  or  employ  him. 
His  negligence  was  its  own  negligence,  and  it  could  not  by  contract 
make  it  the  negligence  of  the  insured,  or  relieve  itself  from  the  legal 
consequences  thereof.     *     *     * 

The  insured  also  agreed  that  "no  information  or  statement  not 
contained  in  this  application,  and  in  the  statements  made  to  the  medi- 
cal examiner,  received  or  acquired  at  any  time  by  any  person,  shall 
be  binding  upon  the  company,  or  shall  modify  or  alter  the  declara- 
tions and  warranties  made  therein."  The  facts  sought  to  be  proved 
were  contained  in  the  oral  statements  made  to  the  medical  examiner, 
but,  assuming  that  recorded  statements  only  were  meant,  the  result 
would  be  an  agreement  that  the  company  might  perpetrate  a  fraud 
upon  the  insured,  by  issuing  a  policy  and  accepting  premiums  thereon, 
knowing  all  the  time  that  the  contract  was  void,  or  voidable  at  its 
election.  The  law  does  not  permit  this ;  for  it  declares  that  the  com- 
pany is  estopped  from  taking  advantage  of  such  a  contract,  because 
it  would  be  against  equity  and  opposed  to  public  policy. 

We  adopt,  as  expressing  our  own  views  upon  the  subject,  the  fol- 
lowing language  used  by  the  supreme  court  of  the  United  States,  in 
a  case  somewhat  analogous :  "If,  however,  we  suppose  the  party 
making  the  insurance  to  have  been  an  individual,  and  to  have  been 
present  when  the  application  was  signed,  and  soliciting  the  assured 
to  make  the  contract  of  insurance,  and  that  the  insurer  himself  wrote 
out  all  these  representations,  and  was  told  by  the  plaintiff  and  his 
wife  that  they  knew  nothing  at  all  of  this  particular  subject  of  in- 
quiry, and  that  they  refused  to  make  any  statement  about  it,  and 
yet,  knowing  all  this,  wrote  the  representation  to  suit  himself,  it  is 
equally  clear  that  for  the  insurer  to  insist  that  the  policy  is  void 
because  it  contains  this  statement  would  be  an  act  of  bad  faith  and 
of  the  grossest  injustice  and  dishonesty.  And  the  reason  for  this  is 
that  the  representation  was  not  the  statement  of  the  plaintiff,  and 
that  the  defendant  knew  it  was  not  when  he  made  the  contract,  and 
that  it  was  made  by  the  defendant,  who  procured  the  plaintiff's  signa- 
ture thereto.  It  is  precisely  in  such  cases  as  this  that  courts  of  law 
in  modern  times  have  introduced  the  doctrine  of  equitable  estoppel, 
or,  as  it  is  sometimes  called,  'estoppel  in  pais.'  *  *  *  Indeed,  the 
doctrine  is  so  well  understood  and  so  often  enforced  that  if,  in  the 
transaction  we  are  now  considering,  Ball,  the  insurance  agent  who- 
made  out  the  application,  had  been  in   fact  the  underwriter  of   the. 


LIMITATIONS   UPON    THE    POWERS   OF    AGENTS  253 

policy,  no  one  would  doubt  its  applicability  to  the  present  case.  Yet 
the  proposition  admits  of  as  little  doubt  that  if  Ball  was  the  agent 
of  the  insurance  company,  and  not  of  the  plaintiff,  in  what  he  did  in 
filling  up  the  application,  the  company  must  be  held  to  stand  just 
as  he  would  if  he  were  the  principal.  *  *  *  This  principle  does 
not  admit  oral  testimony  to  vary  or  contradict  that  which  is  in  writ- 
ing, but  it  goes  upon  the  idea  that  the  writing  offered  in  evidence 
was  not  the  instrument  of  the  party  whose  name  is  signed  to  it ; 
that  it  was  procured  under  such  circumstances  by  the  other  side  as 
estops  that  side  from  using  it  or  relying  on  its  contents;  not  that 
it  may  be  contradicted  by  oral  testimony,  but  that  it  may  be  shown 
by  such  testimony  that  it  cannot  be  lawfully  used  against  the  party 
whose  name  is  signed  to  it."  Insurance  Co.  v.  Wilkinson,  13  Wall. 
222,  20  L.  Ed.  617. 

We  think  it  is  established  by  the  weight  of  authority  in  this  state 
that  the  medical  examiner  is  the  agent  of  the  insurer  in  making  the 
examination,  taking  down  the  answers,  and  reporting  them  to  the 
company;  that  his  knowledge  thus  acquired,  his  interpretation  of  the 
answers  given,  and  his  errors  in  recording  them,  are  the  knowledge, 
interpretation,  and  errors  of  the  company  itself,  which  is  estopped 
from  taking  advantage  of  what  it  thus  knew  and  what  it  had  thus 
done  when  it  issued  the  policy  and  accepted  the  premiums.  O'Farrell 
v.  Insurance  Co.,  22  App.  Div.  495,  48  N.  Y.  Supp.  199;  Id.,  44 
App.  Div.  554,  60  N.  Y.  Supp.  945;  Id.,  168  N.  Y.  592,  60  N.  E. 
1117;  O'Brien  v.  Society,  117  N.  Y.  310,  318,  22  N.  E.  954;  Grattan 
V.  Insurance  Co.,  92  N.  Y.  274,  44  Am.  Rep.  372;  Grattan  v.  In- 
surance Co.,  80  N.  Y.  281,  36  Am.  Rep.  617;  Flynn  v.  Insurance 
Co.,  78  N.  Y.  568,  34  Am.  Rep.  561 ;  Whited  v.  Insurance  Co.,  76 
N.  Y.  415,  32  Am.  Rep.  330;  Sprague  v.  Insurance  Co.,  69  N.  Y.  128. 
*     *     *     Reversed. 


254  WAIVEK  AND   ESTOPPEL 


WAIVER  AND  ESTOPPEL 
I.  General  Principles  ^ 


METCALF  V.  PHENIX  INS.  CO. 

(Supreme  Court  of  Rhode  Island,  1S99.     21  R.  I.  307.  43  Atl.  541.) 

Action  by  Mary  L.  Metcalf  against  the  Phenix  Insurance  Com- 
pany.    On  demurrer. 

Matteson,  C.  J.  This  is  assumpsit  on  a  policy  of  insurance  against 
loss  by  fire.  The  defendant  pleads  that  suit  was  not  begun  within  12 
months  next  after  the  fire,  as  required  by  limitation  in  the  policy. 
The  plaintifif  replies  that  the  defendant,  by  its  duly-authorized  agents 
and  servants,  entered  into  negotiations  with  her  for  the  purpose  of 
adjusting  the  loss  without  litigation,  and  repeatedly  promised  her 
that  the  loss  should  be  adjusted  without  suit,  and  requested  her  not 
to  bring  suit;  that,  relying  on  these  representations,  requests,  and 
promises,  she  was  induced  to  delay,  and  did  delay,  bringing  suit, 
until  the  12  months  had  expired,  and  that,  by  reason  of  such  repre- 
sentations, requests,  and  promises,  the  defendant  is  estopped  to  plead 
the  limitation  in  the  policy.  By  way  of  rejoinders,  the  defendant 
sets  up,  in  answer  to  the  replications,  the  final  clause  of  the  policy, 
to  the  efifect  that  no  officer,  agent,  or  other  representative  of  the 
company  shall  have  power  to  waive  any  provision  or  condition  of  the 
policy  except  such  as,  by  the  terms  of  the  policy,  may  be  the  sub- 
ject of  agreement  indorsed  thereon  or  added  thereto,  and  avers  that 
the  limitation  in  the  policy  is  not  a  provision  which,  by  the  terms  of 
the  policy,  may  be  the  subject  of  agreement  to  be  indorsed  on  or 
added  to  it.  The  plaintifif  demurs  to  the  rejoinders  upon  the  ground 
that  the  facts  alleged  in  the  replications  to  avoid  the  limitation  of 
the  policy  are  pleaded  as  an  estoppel,  and  not  as  a  waiver. 

The  question  thus  presented  is  whether  the  clause  in  the  policy  set 
up  in  the  rejoinders  relating  to  waiver  constitutes  an  answer  to  the 
facts  pleaded  in  the  replications,  and  which,  if  proved,  would  create 
an  estoppel  in  pais  against  the  defendant,  and  preclude  it  from  avail- 
ing itself  of  the  limitation  respecting  the  bringing  of  suits.  Oakman 
V.  Insurance  Co.,  9  R.  I.  357.  As  stated  in  this  case,  strictly  speak- 
ing, the  defendant  could  not  waive  its  right  to  insist  on  the  limitation 
until  the  time  came  for  it  to  so  insist,  i.  e.  until  it  had  been  sued. 
The  clause  in  question  is  to  receive  a  strict  construction  against  the 

1  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  118-120.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  3,  p.  2455  et  seq. 


GENERAL   PRINCIPLES  255 

defendant,  in  whose  favor  it  was  designed  to  operate,  and  is  to  be 
construed,  if  possible,  so  as  to  prevent  a  forfeiture.  11  Am.  &  Eng. 
Enc.  Law,  286,  and  cases  cited.  Giving  to  the  clause  this  strict 
construction,  it  is  clear  that  it  can  have  no  application  to  the  limi- 
tation against  the  bringing  of  suits  until  the  suit  has  been  begun, 
and  therefore  cannot  be  applied  to  matters  which  occurred  previously 
to  the  suit.  And,  since  it  in  terms  applies  only  to  matters  constituting 
a  waiver,  it  is  clear  that  it  can  have  no  application  to  facts  creating 
an  estoppel;  for,  though  the  terms  "estoppel"  and  "waiver"  may 
sometimes  loosely  be  used  interchangeably,  there  is  a  clear  distinction 
between  them. 

A  waiver  arises  by  the  intentional  relinquishment  of  a  right  by  a 
person  or  party,  or  by  his  neglect  to  insist  upon  his  right  at  the 
proper  time,  and  does  not  imply  any  conduct  or  dealing  with  another 
by  which  that  other  is  induced  to  act  or  forbear  to  act  to  his  dis- 
advantage, while  an  estoppel  necessarily  presupposes  some  such  con- 
duct or  dealing  with  another.  The  matters  set  up  in  the  replications 
are  matters  operating  by  way  of  estoppel,  and  not  as  a  waiver,  and 
our  opinion  is  therefore  that  the  rejoinders  are  not  a  sufficient  answer 
to  them.  Demurrers  to  the  first  rejoinder  to  the  replication  to  the 
second  plea,  and  the  first  rejoinder  to  the  replication  to  the  third 
plea,  sustained,  and  said  rejoinders  overruled.  Case  remitted  to  the 
common-pleas  division  for  further  proceedings,^ 


ALABAMA  STATE  MUT.  ASSUR.  CO.  v.  LONG  CLOTHING 

&  SHOE  CO, 

(Supreme  Court  of  Alabama,  1899.     123  Ala.  667,  26  South.  655.) 

Action  by  the  Long  Clothing  &  Shoe  Company  against  the  Alabama 
State  Mutual  Assurance  Company  on  an  insurance  policy.  From  a 
judgment  in  favor  of  plaintiff,  defendant  appeals. 

Sharpe,  J.^  The  action  is  in  the  Code  form,  upon  a  policy  of  fire 
insurance.  The  errors  assigned  relate  only  to  the  action  of  the  court 
in  overruling  demurrers  to  replications,  *  *  *  The  second  plea 
averred,  in  substance,  that  the  plaintiff  violated  the  contract  of  insur- 
ance by  obtaining,  contrary  to  its  stipulations,  additional  insurance 
upon  the  goods  alleged  to  have  been  damaged,  without  giving  notice 
to,  and  obtaining  the  written  consent  of,  the  defendant.  The  replica- 
tions in  question  each  set  up  in  avoidance  of  the  plea  facts  depend- 
ed upon  as  constituting  a  waiver  on  the  part  of  the  defendant  of  the 
stipulation  respecting  additional  insurance. 

2  Distinction  between  waiver  and  estoppel,  see,  also,  Germania  Ins,  Co. 
V,  Bromwell,  post,  p.   258. 

3  Statement  of  facts  and  part  of  the  opinion  are  omitted. 


256  WAIVER  AND   ESTOPPEL 

Provisions  like  the  one  set  out  in  the  second  plea  are  inserted  fof 
the  benefit  of  the  insurer,  and  can  therefore  be  waived  by  the  insurer. 
Since  the  law  of  waiver  and  estoppel  cannot  be  abolished  by  contract, 
the  stipulation  which  in  case  of  additional  insurance  purports  to  hinge 
the  validity  of  the  policy  upon  the  written  consent  of  the  secretary 
does  not  prevent  the  operation  of  the  usual  rules  by  which  a  waiver 
of  that  clause  may  be  established.  Such  waiver  may  therefore  be 
shown  by  parol,  and  even  by  acts,  declarations,  or  conduct  on  the  part 
of  the  insurer.  Insurance  Co.  v.  Young,  86  Ala.  424,  5  South.  116, 
11  Am.  St.  Rep.  51;  Bouton  v.  Insurance  Co.,  25  Conn.  542;  Insur- 
ance Co.  V.  Norton,  96  U.  S.  234,  24  L.  Ed.  689;  Insurance  Co.  v. 
Eggleston,  96  U.  S.  572,  24  L.  Ed.  841 ;  Insurance  Co.  v.  French, 
30  Ohio  St.  240,  27  Am.  Rep.  443 ;  Insurance  Co.  v.  Earle,  33  Mich. 
153;    Williams  v.  Association,  89  Me.  158,  36  Atl.  63. 

A  waiver  may  be  founded  upon  an  estoppel,  but  it  is  not  so  nec- 
essarily. Though  the  conduct  of  the  insurer  may  not  have  actually 
misled  the  insured  to  his  prejudice,  or  into  an  altered  position,  yet 
if,  after  knowledge  of  all  the  facts,  its  conduct  has  been  such  as  to 
reasonably  imply  a  purpose  not  to  insist  upon  a  forfeiture,  the  law, 
leaning  against  forfeitures,  will  apply  the  peculiar  doctrine  of  waiver, 
invented  probably  to  prevent  them,  and  will  hold  the  insurer  irrevo- 
cably bound  as  by  an  election  to  treat  the  contract  as  if  no  cause  of 
forfeiture  had  occurred.  Kiernan  v.  Insurance  Co.,  150  N.  Y.  190, 
44  N.  E.  698 ;   Titus  v.  Insurance  Co.,  81  N.  Y.  410. 

Under  this  principle  the  sufficiency  of  the  second,  third,  fourth, 
and  fifth  replications  may  be  tested.  They  set  up  no  estoppel,  but  they 
each  aver  the  failure  of  the  defendant  to  object  to  the  additional  in- 
surance before  the  loss  occurred,  though  it  had  been  given  notice  of 
the  subsequent  insurance,  and  a  reasonable  time  for  objections  had 
then  elapsed. 

The  authorities  appear  to  be  generally  agreed  that  such  failure  to 
act  on  the  part  of  the  insurer  is  evidence  of  an  intention  to  waive  the 
stipulations  against  additional  insurance,  but  they  are  not  entirely  in 
accord  as  to  whether  such  nonaction  in  itself  will  constitute  a  waiver, 
as  a  legal  conclusion.  In  Insurance  Co.  v.  Young,  supra,  it  was  said : 
"If  the  defendant  did  not  have  notice  of  the  forfeiture  until  after 
the  destruction  of  the  goods,  some  affirmative  act  or  conduct  is  req- 
uisite. In  such  case  a  waiver  cannot  be  inferred  from  mere  silence." 
But,  where  the  notice  is  given  the  company  before  the  loss,  the  rea- 
son is  strong  for  holding  it  to  the  duty  of  expressing  its  dissent  in 
some  unequivocal  way,  if  a  forfeiture  is  to  be  claimed.  The  right  of 
forfeiture  residing  alone  with  the  company,  it  should  not  hold  it  in 
abeyance  for  an  unreasonable  time  so  as  to  thereafter  be  enabled  to 
accept  or  reject  the  contract  as  may  suit  its  interests,  while  the  other 
party  continues  bound  for  the  premium,  and  ought  to  know  whether 
the  property  is  protected.  Acquiescence  of  the  company  in  the  con- 
tinuance of  the  contract  may  be  more  readily  presumed  where  it  mav 


PRIOR   PAROL   WAIVERS  257 

bring  benefits  than  where  nothing-  but  loss  is  in  sight,  and  the  insured 
is  therefore  more  Hkely  to  be  misled  by  the  lack  of  objection.  The 
view  that  the  silence  of  the  company  in  such  case  should  be  treated 
as  its  assent  to  the  additional  insurance  is  reasonable,  and  it  is  well 
supported  by  authority.  Beach,  Ins.  §  767;  Wood,  Ins.  p.  807;  In- 
surance Co.  V.  Lyons,  38  Tex.  253 ;  Cromwell  v.  Insurance  Co.,  47 
Mo.  App.  109;  Potter  v.  Insurance  Co.,  5  Hill  (N.  Y.)  147.  See, 
also,  Insurance  Co.  v.  Marple,  1  Ind.  App.  411,  27  N.  E.  633;  Joliffe 
V.  Insurance  Co.,  39  Wis.  Ill,  20  Am.  Rep.  35;  Hayward  v.  Insur- 
ance Co.,  52  Mo.  181,  14  Am.  Rep.  400. 

The  last-mentioned  replications  were  therefore  each  good,  in  avoid- 
ance of  the  plea,  and  the  demurrers  thereto  were  properly  overruled. 

4i         *         *  4 


II.  Prior  Parol  Waivers  ' 


CALMENSON  v.  EQUITABLE  MUT.  FIRE  INS.  CO. 

(Supreme  Court  of  Minnesota,  1904.     92  Minn.  390,  100  N.  W.  88.) 

Action  by  Cain  Calmenson  against  the  Equitable  Mutual  Fire  In- 
surance Company  of  Minneapolis.  From  an  order  dismissing  the 
action,  plaintiff  appeals. 

Lewis,  J.  This  action  was  brought  to  recover  the  amount  of  loss 
suffered  by  fire  under  a  policy  issued  by  respondent  company.  The 
defense  was  interposed  that,  subsequent  to  the  issuance  of  the  policy, 
appellant  procured  other  insurance  without  respondent's  assent.  Re- 
ply alleged  that  assent  had  been  given. 

During  the  progress  of  the  trial,  appellant  made  the  following  of- 
fer of  proof:  That  he  had  made  application  to  the  solicitor  of  re- 
spondent company  for  $4,000  or  $5,000  insurance  on  his  stock  of 
goods  at  Lidgerwood,  N.  D. ;  that  the  solicitor  asked  the  company's 
secretary  if  he  would  write  the  risk  for  that  amount,  and  the  secre- 
tary, after  inquiring  concerning  the  character  of  the  building  in  which 
the  goods  were  contained,  said  the  company  would  place  $2,000  of 
the  insurance,  and  appellant  could  get  the  remainder  in  some  other 
company ;  that  this  fact  was  communicated  to  appellant  by  the  solici- 
tor, whereupon  appellant  made  written  application  for  $2,000  insur- 
ance, which  was  submitted  to  the  company,  and'  was  examined  and 
approved  by  it;    that  the  soHcitor  told  appellant  he  could  get  $2,000 

*  Reversed  for  other  errors. 

B  For  discussion  of  principles,  see  Vance  on  Insurance,  §  122.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  3,  p.  2595  et  seq. 

CooLEY  Ins. — 17 


258  WAIVER  AND   ESTOPPEL 

Other  insurance,  which  he  advised  him  to  take  in  old-line  companies ; 
that  appellant  took  the  policy  with  the  understanding  that  he  had  the 
right  to  take  out  additional  insurance,  and  accordingly  took  out  $500 
in  another  company.  The  offer  was  refused,  and  at  the  close  of  plain- 
tiff's case,  on  motion,  the  court  dismissed  the  action  on  the  ground 
that  appellant  had  not  introduced  evidence  sufl^cient  to  sustain  the 
cause. 

The  ruling  of  the  trial  court  was  correct.  Plaintiff's  cause  of  ac- 
tion was  based  upon  the  contract  as  evidenced  by  the  policy,  which 
provided :  "This  policy  shall  be  void  *  *  *  jf  the  assured  now  has 
or  shall  hereafter  take  any  insurance  on  said  property  without  the 
assent  of  the  company."  So  far  as  appears  from  the  policy,  such 
assent  might  be  oral ;  there  being  no  requirement,  as  is  usual,  that 
it  be  in  writing  or  be  indorsed  on  the  policy.  The  offer  of  proof  that 
the  assent  was  orally  given  by  the  secretary  at  the  time  verbal  ap- 
plication was  made  for  the  insurance  was  inadmissible,  for  the  rea- 
son that  the  application  for  and  the  contract  of  insurance  were  re- 
duced to  writing,  and,  under  a  familiar  rule  of  evidence,  all  contem- 
poraneous verbal  statements,  agreements,  and  understandings  were 
merged  in  the  writings.  For  application  of  the  rule  to  written  con- 
tracts of  insurance,  see  Union  Nat.  Bank  v.  German  Ins.  Co.,  71  Fed. 
473,  18  C.  C.  A.  203 ;  Insurance  Company  v.  Mowry,  96  U.  S.  544, 
24  L.  Ed!.  674 ;  Germania  Ins.  Co.  v.  Bromwell,  62  Ark.  43,  34  S.  W. 
83.    Order  affirmed. 


GERMANIA  INS.  CO.  v.   BROMWELL. 
(Supreme  Court  of  Arkansas,  1896.    62  Ark.  43,  34  S.  W.  S3.) 

Action  by  C.  E.  Bromwell  against  the  Germania  Insurance  Company. 
From  a  judgment  for  plaintiff,  defendant  appeals.*' 

RiDDiCK,  J.  It  is  admitted  by  Bromwell,  the  assured,  that  he  did 
not  comply  with  the  provisions  of  the  iron  safe  clause  in  his  policy. 
That  clause  required  the  assured  to  keep  a  set  of  books  showing  the 
changes  taking  place  from  time  to  time  in  the  stock  of  goods  insured. 
The  reason  of  it  is  apparent,  for  without  such  books  the  amount  of 
merchandise  on  hand  at  time  of  the  fire  could  not  be  told.  Similar 
provisions  have  been  frequently  held  valid  by  this  court.  Insurance 
Co.  V.  Parker,  61  Ark.  207,  32  S.  W.  509 ;  Assurance  Co.  v.  Altheim- 
er,  58  Ark.  575,  25  S.  W.  1067 ;  Insurance  Co.  v.  Wilkerson,  53  Ark. 
353,  13  S.  W.  1103. 

As  an  excuse  for  failing  to  comply  with  this  requirement  of  his  pol- 
icy,  Bromwell  testified  that  before  the  policy  was  issued  the  agent 
of  the  company  told  him  that  it  was  unnecessary  to  keep  such  books.  ■ 
But  it  was  not  competent  thus  to  contradict  the  material  stipulations. 

6  Statement  of  facts  rewritten. 


PRIOR   PAROL   WAIVERS  259 

of  the  policy  by  evidence  of  the  parol  declarations  of  the  parties  made 
at'  the  time  or  before  the  policy  was  issued.  The  rule  that  "parol 
contemporaneous  evidence  is  inadmissible  to  contradict  or  vary  the 
terms  of  a  valid  written  instrument"  applies  to  contracts  of  insurance 
as  well  as  to  other  written  or  printed  contracts.  Robinson  v.  Insur- 
ance Co.,  51  Ark.  441,  11  S.  W.  686,  4  L.  R.  A.  251 ;  Southern  Ins. 
Co.  V.  White,  58  Ark.  281,  24  S.  W.  425;  Weston  v.  Emes,  1  Taunt. 
115;  Insurance  Co.  v.  Pruett,  74  Ala.  497;  Thompson  v.  Insurance 
Co.,  104  U.  S.  259,  26  L.  Ed  765 ;  Insurance  Co.  v.  Mowry,  96  U. 
S.  547,  24  L.  Ed.  674;    1  Wood,  Ins.  10;    1  Greenl.  Ev.  §  275. 

It  is  contended  by  counsel  for  appellee  that  this  provision  of  the 
policy  was  waived  by  the  declaration  of  the  agent,  made  before  the 
policy  was  issued,  and  that  the  company  cannot  now  assert  it ;  but 
we  think  that  this  contention  is  not  sound.  The  case  of  Sprott  v.  As- 
sociation, 53  Ark.  215,  13  S.  W.  799.  cited  by  counsel,  does  not  sup- 
port such  contention,  for  there  the  written  application  for  insurance, 
upon  which  the  policy  was  issued,  notified  the  insurer  where  the  books 
would  be  kept.  That  was  not  an  attempt  to  contradict  the  terms  of 
the  policy  by  evidence  of  parol  contemporaneous  statements,  but  by  a 
writing  which  could  be  treated  as  a  part  of  the  contract.  It  is  true 
there  are  many  cases  which  hold  that  requirements  as  to  notice  and 
proof  of  loss  may  be  waived.  There  are  also  many  cases  holding 
that  an  insurance  company  may,  under  certain  circumstances,  be  es- 
topped from  taking  advantage  of  a  forfeiture  or  breach  of  a  condi- 
tion in  the  policy.  "Any  unequivocal  and  positive  act  of  the  company 
recognizing  the  policy  as  valid  after  a  knowledge  of  its  breach,  or 
any  act  that  puts  the  insured  to  unreasonable  expense  or  trouble  in 
the  justifiable  belief  that  the  company  still  regards  the  policy  as  valid, 
will  estop  the  company  from  taking  advantage  of  the  forfeiture." 
Rich.  Ins.  §  64;  Wood,  Ins.  1161;  Insurance  Co.  v.  Brodie,  52  Ark. 
11,  11  S.  \V.  1016,  4  L.  R.  A.  458;  Insurance  Co.  v.  Gibson,  53  Ark. 
494,  14  S.  W.  672. 

There  are  a  large  number  of  cases  resting  upon  this  rule,  some  of 
which  have  been  cited  by  counsel,  but  there  is  a  broad  distinction  be- 
tween those  cases  and  the  one  at  bar.  In  those  cases  the  acts  of  the 
agent  or  company  which  were  treated  as  a  waiver  or  were  held  to 
constitute  an  estoppel  took  place  at  the  time  of  or  after  the  breach 
of  the  condition,  but  the  declarations  of  the  agent  relied  on  here  to 
create  an  estoppel  or  waiver  by  the  company  took  place  not  only  be- 
fore the  breach  of  the  condition  occurred,  but  before  the  policy  was 
issued.  An  estoppel  can  seldom  arise,  except  when  the  representa- 
tion relates  to  a  matter  of  fact  existing  at  the  time  or  previously. 
Acts  which  waive  a  forfeiture  must,  of  necessity,  follow,  or  at  least 
accompany  the  acts  which  would  otherwise  constitute  the  forfeiture, 
for  there  cannot  be  a  waiver  of  a  forfeiture  until  a  forfeiture  exists. 

A  company  or  its  agents  may,  by  acts  clearly  recognizing  a  policy 
as  valid  after  notice  of  the  facts,  waive  a  breach  of  a  condition  in  a 


260  WAIVER  AND  ESTOPPEL 

policy  already  existing,  but  it  cannot  well  be  contended  that  an  agent 
could,  by  his  acts  or  declarations,  waive  the  stipulations  of  a  policy 
not  then  in  existence.  Bernard  v.  Association,  11  Misc.  Rep.  441, 
32  N.  Y.  Supp.  223 ;  Insurance  Co.  v.  Mowry,  96  U.  S.  547,  24  L. 
Ed.  674;  Bigelow,  Estop.  (5th  Ed.)  574;  Thompson  v.  Insurance 
Co.,  104  U.  S.  259,  26  E.  Ed.  765;  Insurance  Co.  v.  Pruett,  74  Ala. 
497. 

This  doctrine  of  estoppel  and  waiver  has  no  application  when  the 
declaration  of  the  agent  relates  to  the  rights  depending  upon  contracts 
yet  to  be  made,  to  which  the  person  complaining  is  to  be  a  party,  for 
in  such  a  case  he  has  it  in  his  power  to  protect  himself  by  proper 
stipulations  in  the  contract  when  reduced  to  writing.  Insurance  Co. 
v.  Mowry,  96  U.  S.  547,  24  L.  Ed.  674;  Bigelow,  Estop.  (5th  Ed.) 
■74.  The  case  last  cited  arose  upon  a  life  insurance  policy.  The  agent 
had  agreed  that  the  insured  should  be  notified  by  the  company  when 
each  premium  fell  due.  No  such  provision  was  put  in  the  policy, 
but  by  an  express  condition  of  the  policy  the  company  was  released 
from  liability  upon  the  failure  of  the  insured  to  pay  the  premium  when 
it  matured.  It  was  contended  that  the  company  could  not  insist  upon 
this  condition  on  account  of  the  promise  of  the  agent  and  the  failure 
of  the  company  to  give  the  notice  before  the  premium  became  due. 
"But,"  said  the  court,  "to  this  position  there  is  an  obvious  and  com- 
plete answer.  All  previous  verbal  arrangements  were  merged  in  the 
written  agreement.  The  understanding  of  the  parties  as  to  the  amount 
of  the  insurance,  the  conditions  upon  which  it  should  be  payable,  and 
the  premium  to  be  paid,  were  then  expressed  for  the  purpose  of  avoid- 
ing any  controversy  or  question  respecting  them.  The  entire  engage- 
ment of  the  parties,  with  all  the  conditions  upon  which  its  fulfillment 
could  be  claimed,  must  be  conclusively  presumed  to  be  then  stated. 
If  by  inadvertence  or  mistake  provisions  other  than  those  intended 
were  inserted,  or  stipulated  provisions  were  omitted,  the  parties  could 
have  recourse  for  a  correction  of  the  agreement  to  a  court  of  equity, 
which  is  competent  to  give  all  needful  relief  in  such  cases.  But,  until 
thus  corrected  the  policy  must  be  taken  as  expressing  the  final  under- 
standing of  the  assured  and  the  insurance  company."  Insurance  Co. 
V.  Mowry,  supra. 

The  above  extract  from  the  opinion  of  the  United  States  supreme 
court  asserts  only  well-known  rules  of  law  which  must  apply  in  this 
case.  If  the  agent  of  the  insurance  company  agreed  with  appellee  that 
he  need  not  keep  books,  he  should  have  refused  to  accept  a  policy 
in  which  it  was  expressly  stipulated  that  he  should  keep  books.  If 
through  mistake  he  accepted  a  policy  which  did  not  express  the  con- 
tract made  with  the  agent,  he  should  have  applied  to  a  court  of  equity 
to  have  the  contract  reformed.  Having  brought  his  action  at  law  upon 
the  policy,  and  prosecuted  it  to  judgment,  he  has  elected  to  treat  it 
as  expressing  the  true  contract  between  himself  and  the  company, 
and  he  cannot  now  recede  from  it,  or  contradict  it.    Washburn  v.  In- 


SUBSEQUENT   PAROL   WAIVERS  2Gi 

surance  Co.,  114  Mass.  175.  We  must  therefore,  in  considering  this 
case,  disregard  entirely  the  testimony  of  oral  contemporaneous  declar- 
ations which  contradict  the  provisions  of  the  policy,  and  we  conclude 
that  the  judgment  of  the  circuit  court  is  without  evidence  to  support  it. 
The  appellee  undertook  that  he  would  keep  a  set  of  books  showing 
a  complete  record  of  his  business.  He  failed  to  do  so,  and  by  the 
terms  of  his  contract  he  cannot  recover.  The  judgment  is  reversed, 
and  the  cause  remanded  for  further  proceedings. 


III.  Subsequent   Parol  Waivers ' 


GERMAN-AMERICAN  INS.  CO.  v.  HUMPHREY. 

(Supreme  Court  of  Arkansas,  1896.     62  Ark.  348,  35  S.  W.  -428,  54  Am.   St. 

Rep.  297.) 

Action  by  J.  H.  Humphrey  against  the  German-American  Insur- 
ance Company  on  a  policy  of  fire  insurance.  Judgment  for  plain- 
tiff, and  defendant  ap];eals. 

Wood,  J.  The  plaintiff  sued  upon  a  fire  insurance  policy,  for  the 
loss  of  certain  hotel  furniture.  The  defense  was  based  upon  alleged 
noncompliance  with  the  terms  of  the  policy,  which  provided  "that  if 
the  subject  of  the  insurance  be  personal  property,  and  be  or  become 
incumbered  by  a  chattel  mortgage,"  the  policy  should  be  void.  The 
property  covered  by  the  policy  was  mortgaged  after  the  issuance  of 
the  policy.  But  the  plaintiff  contends  that  the  policy  was  only  sus- 
pended during  the  continuance  of  the  mortgage,  and  was  revived  by 
the  discharge  of  the  mortgage  before  the  loss  occurred.  There  was 
proof,  though  meager,  to  support  the  finding  that  the  mortgage  was 
canceled  before  the  fire,  although  the  record  was  not  satisfied  until 
after.  The  satisfaction  of  the  record  was  not  essential  to  the  re- 
moval of  the  incumbrance.  If  the  mortgage  was  paid  off  and  can- 
celed, it  was  sufficient.  May,  Ins.  §  292 ;  Hawkes  v.  Insurance  Co., 
11  Wis.  188;  Smith  v.  Insurance  Co.,  60  Vt.  682,  15  Atl.  353,  1 
L.  R.  A.  216,  6  Am.  St.  Rep.  144;  Merrill  v.  Insurance  Co..  7Z  X.  Y. 
452,  29  Am.  Rep.  184. 

But  the  proposition  that  the  incumbrance,  while  it  existed,  only 
suspended  the  policy,  contravenes  the  unambiguous  terms  of  the  con- 
tract, which  the  parties  themselves  have  made.  The  language  of  the 
clause  quoted  supra,  in  its  plain,  ordinary  and  popular  sense,  indicates 
a  total  extinction  of  the  policy  if  the  property  be  incumbered,  and 

7  For  discussion  of  principles,  see  A'anee  on  Insurance,  §  123.  See,  also, 
Coolej-,  Briefs  on  the  Law  of  Insurance,  vol.  3,  p.  2601  et  seq. 


262  WAIVER  AND   ESTOPPEL 

not  a  suspended  animation  thereof,  subject  to  be  revived  upon  pay- 
ment of  the  mortgage  debt.  Courts,  by  interpretation,  cannot  ingraft 
upon  insurance  contracts,  any  more  than  upon  any  other,  a  meaning 
totally  foreign  to  that  which  the  plain  terms  employed  by  the  parties 
themselves  convey.  It  is  undoubtedly  true  that  where  the  contract, 
on  account  of  any  ambiguity  in  the  language  used,  is  reasonably  sus- 
ceptible of  different  constructions,  that  construction  should  be  adopted 
most  favorable  to  the  insured.  Imperial  Fire  Ins.  Co.  of  London 
V.  Coos  Co.,  151  U.  S.  452,  14  Sup.  Ct.  379,  38  L.  Ed.  231;  1  May, 
Ins.  §§  175,  176,  and  authorities  cited. 

The  insurer  has  the  right  to  contract  against  any  possible  risk  of 
loss  or  embarrassment  incident  to  incumbering  the  property  insured. 
If  it  be  said  that,  where  the  mortgage  is  paid  off,  there  is  no  longer 
an  incumbrance  and  increase  of  risk,  still  as  to  whether  or  not  the 
mortgage  had  been  paid  off  would  be  the  question,  and  one  that 
often  could  not  be  settled  without  expensive  litigation.  The  insured 
mortgagor  might  enter  into  collusion  with  the  mortgagee  to  defraud 
the  insurance  company  after  the  loss  occurred,  by  claiming  that  the 
mortgage  had  been  paid  off  and  discharged,  when  in  fact  it  had  not. 
Unfortunately,  all  men  are  not  honest.  Without  some  such  provision 
in  the  policy,  the  unscrupulous  would  have  an  inviting  opportunity, 
after  a  loss,  to  divide  the  spoils,  at  the  expense  of  the  insurer.  Doubt- 
less some  such  considerations  as  these  prompted  the  clause  in  the 
policy  under  consideration.  The  clause  is  reasonable  and  clear,  and 
the  parties  had  the  right  to  thus  contract.  The  opinion  in  Imperial 
Fire  Ins.  Co.  of  London  v.  Coos  Co.,  supra,  and  the  numerous  au- 
thorities there  reviewed,  leaves  no  doubt  of  the  correctness  of  our 
ruling.  Contra,  counsel  cite  May  on  Fire  Insurance,  at  page  589 
(section  294),  where  he  says,  "An  incumbrance  in  violation  of  the 
policy  only  suspends  it,  and,  if  paid  before  the  loss,  the  policy  re- 
vives." And  the  learned  author  cites  Kimball  v.  Monarch  Ins.  Co., 
70  Iowa,  513,  30  N.  W.  862.  An  examination  of  that  case  will  show 
that  after  the  mortgage  had  been  paid  off  the  insured  assigned  the 
policy,  and  the  company  indorsed  upon  it  its  assent  to  the  assignment. 
This  was  tantamount  to  the  issuance  of  a  new  policy.  It  was  a 
waiver  of  forfeiture.     So  the  case  cited  does  not  support  the  text. 

2.  It  is  also  contended  by  the  appellee  that,  if  there  was  a  for- 
feiture, it  was  waived  by  an  agreement  of  the  plaintiff'  with  John  L. 
Mills,  clerk  of  the  local  agent,  to  the  effect  that  the  assured  should 
see  the  mortgagee,  and  have  the  mortgage  canceled,  and  that  the 
policy  should  remain  in  force.  And  appellee  says  that  said  agreement 
on  his  part  was  performed  before  the  loss  occurred.  Such  an  agree- 
ment if  made  by  one  having  authority,  would  be  a  waiver  of  the 
forfeiture.  Pratt  v.  Insurance  Co.,  55  N.  Y.  505,  14  Am.  Rep.  304. 
Since  counsel  for  appellants  have  not  questioned  here  the  sufficiency 
of  the  evidence  to  prove  such  an  agreement,  we  will  treat  the  verdict 
as  conclusive  on  that  point.     Appellant  questions  only  the  authority 


SUBSEQUENT   PAROL   WAIVER8  263 

of  the  clerk  of  the  local  agent  to  make  such  agreement.  The  testi- 
mony as  to  the  authority  of  the  agent  and  his  clerk  is  related  by 
John  L.  Mills  as  follows:  "R.  H.  M.  Mills  is  my  father,  and  I  am 
a  clerk  in  his  office.  I  never  make  any  agreement  about  insurance, 
other  than  the  conditions  in  the  policy.  The  only  contract  we  have 
is  the  policy.  I  am  not  a  partner  with  my  father,  but  only  a  clerk. 
I  merely  sell  the  policies  and  receive  the  premiums.  My  brother  and 
I  merely  do  the  office  work  for  my  father.  I  have  no  authority  from 
the  German-American  Insurance  Company.  My  father  has  never 
appointed  me  subagent  for  them.  I  have  no  power,  from  the  agent 
or  otherwise,  to  alter  any  of  the  terms  of  the  printed  contracts,  nor 
to  make  any  changes  in  a  policy  of  insurance.  I  have  no  power 
to  sign  policies,  but  they  are  all  signed  by  my  father.  I  solicit  in- 
surance, and  fill  up  blank  policies  for  my  father's  signature.  I  filled 
up  this  one.  This  policy  is  signed  by  my  father,  who  is  the  only 
person  authorized  to  sign  it.  I  am  simply  a  soliciting  agent  and  clerk, 
without  any  authority  to  modify  the  contract  embodied  in  the  policy." 

The  policy  provides  that  "no  agent  shall  have  power  to  waive  any 
provision  or  condition  of  this  policy,  except  such  as  by  the  terms  of 
this  policy  may  be  the  subject  of  agreement  indorsed  hereon  or 
added  hereto ;  and,  as  to  such  provisions  or  conditions,  no  agent  shall 
have  such  power,  or  be  deemed  or  held  to  have  waived  such  pro- 
visions or  conditions,  unless  such  waiver,  if  any,  shall  be  written 
upon  or  attach'ed  hereto.  Nor  shall  any  privilege  or  permission  affect- 
ing the  insurance  under  this  policy  exist  or  be  claimed  by  the  in- 
sured unless  so  written  or  attached." 

Under  the  express  terms  of  the  policy,  the  placing  of  a  mortgage 
upon  the  property,  ipso  facto,  avoided  the  policy.  The  forfeiture 
thus  created  could  only  be  waived  by  one  who  had  authority  to  do 
so,  and  authority,  too,  as  high  as  that  by  which  the  contract  was 
made  in  the  first  instance.    Hamilton  v.  Insurance  Co.,  15  Mo.  App.  59. 

There  is  a  marked  distinction  between  a  waiver  of  conditions  made 
before  and  those  made  after  the  issuance  of  a  policy.  But  an  agent 
who  has  been  furnished  by  his  principal  with  blank  applications,  and 
with  policies  duly  signed  by  its  officers,  and  who  has  been  authorized 
to  take  risks,  and  to  issue  policies  by  simply  signing  his  name,  to 
collect  premiums,  and  to  cancel  policies, — all  without  consulting  his 
principal, — would  certainly  be  empowered  to  waive  the  condition  as  to 
incumbrance  either  before  or  after  the  issuance  of  the  policy.  And 
he  could  waive  the  forfeiture  by  parol,  notwithstanding  the  limita- 
tions upon  his  power  in  this  respect  contained  in  the  policy.  In- 
surance Co.  V.  Brodie,  52  Ark.  11,  11  S.  W.  1016,  4  L.  R.  A.  458, 
and  authorities  cited;  Grubbs  v.  Insurance  Co.,  108  N.  C.  472,  13 
S.  E.  236,  23  Am.  St.  Rep.  62,  and  authorities  cited;  Insurance  Co. 
V.'  Norwood,  16  C.  C.  A.  136,  69  Fed.  71. 

If  R.  H.  M.  Mills,  the  local  agent,  possessed  this  power,  there 
is  nothing  in   the  record  to   show   that   he  exercised   it  himself,   or 


264  WAIVER  AND  ESTOPPEL 

that  he  assented  to  its  exercise  by  his  son.  If  he  could  delegate  such 
power  to  his  subordinate,  the  undisputed  proof  shows  that  he  has 
not  done  so.  The  work  of  John  L.  Mills,  as  he  shows,  was  clerical 
and  special.  There  was  nothing  in  the  nature  of  his  employment, 
or  in  the  manner  of  the  discharge  of  his  duties,  from  which  au- 
thority to  waive  a  forfeiture  could  be  inferred.  Nor  does  it  appear 
that  the  defendant  company,  or  its  local  agent,  held  him  out  to 
the  public  as  possessing  such  power. 

The   court's   first   instruction   was   correct.     The   second   was   not 
supported  by  the  evidence.     Reversed  and  remanded. 


GRUBBS  V.  NORTH  CAROLINA  HOME  INS.  CO. 

(Supreme  Court  of  North  Carolina,  1891.     108  N.  C.  472,  13  S.  E.  236,  23  Am. 

St.  Rep.  62.) 

Action  by  W.  F.  Grubbs  against  the  North  Carolina  Home  Insur- 
ance Company  on  a  policy  of  fire  insurance.  From  a  judgment  for 
plaintiff,  defendant  appeals. 

Avery,  J.^  The  defendant  asked  the  court  to  instruct  the  jury  that 
upon  consideration  of  all  the  evidence  there  was  no  waiver  of  the 
condition  of  the  policy  requiring  the  written  consent  of  the  defendant 
to  be  indorsed  upon  it,  provided  the  plaintiff  should  take  out  ad- 
ditional insurance  in  other  companies.  This  request  was  equivalent 
to  a  demurrer  to  the  whole  of  the  evidence,  it  being  admitted  that 
additional  insurance  was  taken  out  in  other  companies  after  the 
policy  sued  on  was  issued,  without  first  securing  the  written  indorse- 
ment of  the  defendant's  consent  upon  it  in  accordance  with  the 
express  requirements  of  one  of  its  conditions. 

If  Dr.  Ramsey,  the  agent  with  whom  the  plaintiff  treated,  was 
authorized  to  take  fire  risks  and  issue  policies,  he  was  empowered 
to  waive  by  parol  a  condition  in  a  policy  issued  by  him.  Winans 
V.  Insurance  Co.,  38  Wis.  342;  Miner  v.  Insurance  Co.,  27  Wis. 
693,  9  Am.  Rep.  479;  Cans  v.  Insurance  Co.,  43  Wis.  108,  28  Am. 
Rep.  535 ;  Insurance  Co.  v.  Spiers,  87  Ky.  285,  8  S.  W.  453 ;  Kit- 
chen V.  Insurance  Co.,  57  Mich.  135.  23  N.  W.  616,  58  Am.  Rep. 
344;  Insurance  Co.  v.  Earle,  33  ■Mich.  143;  A-'iele  v.  Insurance  Co., 
26  Iowa,  63,  96  Am.  Dec.  83;  Wood,  Ins.  §  391;  Shearman  v.  In- 
surance Co,,  46  N.  Y.  526,  7  Am.  Rep.  380;  Fishbeck  v.  Insur- 
ance Co.,  54  Cal.  422. 

Where  a  general  agent  permits  a  subagent  acting  under  his  di- 
rection to  receive  premiums  from  and  to  fill  up  and  deliver  policies 
to  the  insured,  the  acts  of  the  subagent  are  regarded  as  the  acts 
of  the  general  agent.  Insurance  Co.  v.  Ruckman,  127  111.  365,  20 
N.  E.  77,  11  Am.  St.  Rep.  121.     The  powers  of  an  agent  are  prima 

8  Part  of  the  opinion  is  omitted. 


SUBSEQUENT   PAROL   WAIVER8  205 

facie  co-extensive  with  the  apparent  authority  given  him,  and  persons 
deahng  with  him  may  judge  of  their  extent  from  the  nature  of  the 
business  intrusted  to  his  care.  \\'ood,  Ins.  §  500;  Hornthal  v.  In- 
surance Co.,  88  N.  C.  71 ;  Beal  v.  Insurance  Co.,  16  Wis.  241,  82 
Am.  Dec.  719;    Davenport  v.  Insurance  Co.,  17  Iowa,  276. 

Though  the  authorities  are  conflicting  upon  many  questions  that 
have  arisen  as  to  the  powers  of  insurance  agents  generally  to  bind 
the  companies  for  which  they  act,  there  is  a  growing  tendency  to 
abrogate  rules  laid  down  by  some  of  the  courts,  when  the  insured 
sought  the  principal  officers  of  these  corporations  in  the  larger  towns, 
and  asked  the  agents  to  forward  applications  for  insurance,  instead 
of  waiting  at  their  homes  for  agents  sent  to  solicit  their  patronage 
and  stimulated  to  active  and  persistent  effort  by  their  employers. 
We  concur  with  the  judge  below  in  the  opinion  that,  if  Dr.  Ramsey 
was  intrusted  by  the  defendant  (as  he  testified  that  he  was)  with 
the  blank  applications  and  with  its  policies  duly  signed  by  its  officers, 
and  was  authorized  to  take  risks  without  consulting  the  company,  to 
issue  policies  by  simply  signing  his  name  as  agent,  to  collect  pre- 
miums, and  cancel  policies,  then  he  was  empowered  as  agent  to 
waive  the  condition  that  no  additional  insurance  should  be  taken. 
In  the  case  of  Insurance  Co.  v.  Earle,  supra,  an  agent,  when  asked 
about  the  taking  of  additional  insurance,  said  in  substance  that  it 
would  make  no  difference,  but,  without  saying  it  in  so  many  words, 
left  the  inference  that  consent  in  writing  was  not  necessary,  and  the 
court  held  that  the  agent  had  waived  a  condition  in  the  policy  similar 
to  that  in  plaintiff's  policy,  and  that  the  insurers  could  not  avoid 
liability  under  the  contract  because  additional  insurance  was  subse- 
quently taken  in  another  company,  without  asking  for  or  securing  the 
indorsement  of  its  written  consent  on  the  original  policy.  See,  also. 
Cans  V.  Insurance  Co.,  supra. 

After  testifying  that  he  was  permitted  by  the  defendant  to  exercise 
all  of  the  powers  enumerated  by  the  court  in  the  foregoing  instruc- 
tions, Dr.  Ramsey  stated  also  that  Grubbs  did  say  to  him  that  he 
would  want  further  insurance,  and  that  he  (Ramsey)  replied  that  he 
thought  Grubbs  could  get  it  if  he  wished;  that  he  did  not  re- 
member any  more  of  the  conversation  on  that  subject.  The  witness 
Gay  testified  that  Ramsey  said  to  Grubbs,  when  asked  about  further 
insurance,  that  it  was  all  right  so  that  he  did  not  insure  for  more 
than  three-fourths  the  value  of  the  stock.  Grubbs  testifies  that  he 
told  Ramsey  the  exact  amount  of  insurance  that  he  proposed  to  place 
and  did  take  in  each  of  the  other  companies,  which  did  not  in  the 
aggregate  exceed  three-fourths  of  the  value  of  the  property  insured. 
So  that  the  facts  in  our  case  would  more  naturally  warrant  the 
inference  that  the  agent  did  not  require  his  assent  to  be  indorsed  in 
writing  on  the  policy  than  the  evidence  in  the  Michigan  authority 
cited  above,  because  Ramsey  not  only  conveyed  the  idea  that  it 
would  be  all  right  to  get  additional  insurance,  but  added  the  condi- 


266  WAIVER  AND   ESTOPPEL 

tion  that  the  whole  insurance  should  not  in  the  aggregate  exceed 
three-fourths  of  the  value  of  the  property  insured,  thereby  excluding 
the  inferentje  that  he  would  insist  upon  any  other  condition.  But, 
even  upon  his  own  testimony,  Ramsey  was  empowered  to  waive  the 
indorsement ;  and  if,  after  Grubbs  notified  him  of  the  amount  which 
he  proposed  to  take  and  did  afterwards  take  in  each  of  the  other 
companies,  Ramsey  by  his  language  left  Grubbs  to  infer  that  no  ob- 
jection would  be  made  unless  the  aggregate  amount  of  insurance  in  all 
of  the  companies  should  exceed  three-fourths  of  the  value  of  the 
insured  property,  and  Grubbs  did  not  exceed  the  limit,  then,  if 
Grubbs  was  induced  to  believe  that  the  forfeiture  would  not  be  in- 
sisted on  unless  the  limit  in  the  amount  of  insurance  should  be  tran- 
scended, and  acted  under  that  impression  in  effecting  additional  in- 
surance, that  condition  of  the  policy  would  be  considered  as  waived 
by  the  company.     *     *     * 

If  after  a  breach  of  the  conditions  of  a  policy  the  insurers,  with 
a  knowledge  of  the  facts  constituting  it,  by  their  conduct  lead  the 
insured  to  believe  that  they  still  recognize  the  validity  of  the  policy, 
and  consider  him  as  protected  by  it,  and  induce  him  under  such  im- 
pression to  incur  expense,  they  will  be  deemed  to  have  waived  the 
forfeiture,  and  will  be  estopped  from  setting  it  up  as  a  defense. 
Viele  V.  Insurance  Co.,  26  Iowa,  9,  and  note  page  68,  96  Am.  Dec. 
83;  Oshkosh  Gas-Light  Co.  v.  Germania  Fire  Ins.  Co.,  71  Wis.  454, 
Z7  N.  W.  819,  5  Am.  St.  Rep.  233. 

Where,  with  a  knowledge  of  the  facts  constituting  the  alleged 
waiver,  the  insurer,  after  the  insured  property  had  been  destroyed 
by  fire,  requires  the  insured  to  furnish  invoice  of  goods  destroyed, 
proofs  of  loss,  or  plans  and  specifications  of  the  building  burned, 
or  to  appear  for  examination,  such  acts  of  its  adjuster  amount  to  a 
concession  that  the  forfeiture  for  failure  to  secure  the  indorsement 
of  additional  risks  will  not  be  insisted  upon.  Insurance  Co.  v.  Kittle, 
39  Mich.  51;  Titus  v.  Insurance  Co.,  81  N.  Y.  410;  Cannon  v. 
Insurance  Co.,  53  Wis.  585,  UN.  W.  11;  Webster  v.  Insurance  Co., 
36  W^is.  67,  17  Am.  Rep.  479. 

Where,  after  a  fire,  the  adjuster  of  a  company  joins  the  agents  of 
other  companies  in  the  effort  to  adjust  the  loss,  requires  the  pro- 
duction of  books  for  examination,  and  asks  for  invoices  from  the. 
time  the  insured  went  into  business,  and,  the  invoices  not  being  fur- 
nished because  of  their  destruction  by  fire,  then  asks  for  duplicates, 
which  the  insured  endeavored  by  correspondence  with  creditors  to  get, 
and  objects  to  settling  on  the  ground  only  that  he  cannot  agree  with 
the  insured  as  to  the  amount  of  loss,  and  offers  to  pay  for  his  com- 
pany its  proportion  of  the  loss  as  estimated  by  him,  the  company 
represented  by  such  adjuster  is  estopped  from  insisting  upon  a  for- 
feiture by  reason  of  the  breach  of  any  conditions  in  the  policy  in 
reference  to  taking  additional  insurance.     Fishbeck  v.  Insurance  Co., 


SUBSEQUENT    PAROL   WAIVER8  267 

supra ;  Argall  v.  Insurance  Co.,  84  N.  C.  355.    See,  especially,  opinion 
of  Cooley,  J.,  in  Insurance  Co.  v.  Kittle,  supra. 

The  testimony  admitted  after  objection  and  constituting  the  ground 
of  exceptions  4,  5,  and  7,  will  therefore  appear  at  a  glance  to  be 
competent,  if  our  view  of  the  law  in  reference  to  waiver  by  conduct 
subsequent  to  the  loss,  and  inconsistent  with  the  idea  of  insistuig 
upon  a  forfeiture  for  failure  to  comply  with  the  conditions  set  forth 
in  the  policy,  be  correct.  It  would  follow  also  from  the  principle 
laid  down  by  us  that  there  was  no  error  in  so  much  of  his  honor's 
charge  as  relates  to  the  doctrine  of  waiver  by  the  acts  of  the  de- 
fendant's agents  after  the  property  was  destroyed.  *  *  *  Af- 
firmed. 


WILLIAAIS  V.  MAINE  STATE  REUEE  ASS'N. 

(Supreme  Judicial  Court  of  Maine,  1S96.     89  Me.  158,  36  Atl.  G.3.) 

Action  by  Flavilla  Williams  against  the  Maine  State  Relief  Asso- 
ciation.    Submitted  on  an  agreed  statement. 

Foster,  J.  This  is  an  action  to  recover  the  amount  of  $1,500  al- 
leged to  be  due  the  plaintifif  as  the  beneficiary  under  a  benefit  certifi- 
cate issued  by  the  defendant,  a  mutual  benefit  association,  to  her  hus- 
band. Eugene  Williams,  deceased. 

The  promise  to  pay  the  plaintiff  is  conditioned  upon  the  member 
being  in  good  standing  in  the  association  at  the  time  of  his  death. 
The  defense  is  that  he  was  not  in  good  standing  at  that  time.  The 
reply  is  that  the  defendant  has  waived  that  defense. 

It  appears  that  on  July  15,  1893,  two  assessments,  numbered  90 
and  91,  were  laid  on  the  members  of  the  association,  which  were  due 
and  payable  August  15,  1893,  and  upon  the  failure  of  the  assured  to 
pay  the  same  on  or  before  September  15,  1893.  his  membership  would 
be  forfeited  in  accordance  with  the  by-laws  of  the  association ;  that 
the  insured  did  not  pay  the  assessments  on  or  before  September  15, 
1893,  although  due  notice  thereof  was  sent  to  him  by  mail ;  and  it 
is  claimed  on  behalf  of  the  defendant  that,  the  assessments  not  being 
paid  on  or  before  said  15th  day  of  September,  a  second  notice  was 
duly  and  seasonably  mailed  to  the  insured,  but  the  reception  of  this 
is  denied  by  the  plaintiff.  On  September  1,  1893,  two  other  assess- 
ments, numbered  92  and  93,  were  laid  upon  the  insured,  which  were 
due  and  payable  October  1,  1893,  of  which  he  had  due  notice.  On 
October  16,  1893,  assessments  numbered  94  and  95  were  also  laid 
upon  the  insured,  payable  November  15,  1893,  and  a  regular  notice 
thereof  mailed  to  him  on  October  19th,  by  the  secretary  of  the  associa- 
tion. 

The  secretary  would  testify,  as  the  agreed  statement  sets  forth,  that 

this  last  notice  was  sent  to  the  insured  unintentionally  and  by  mistake. 

The  insured  paid  assessments  numbered  90,  91,  92,  and  93  on  Octo- 


268 


WAIVER  AND   ESTOPPEL 


ber  24,  1893,  to  the  assistant  secretary  of  the  association,  at  Lewiston, 
and  the  money  thus  received  was  by  him  sent  to  the  secretary  at  Port- 
land, on  the  same  day,  and,  so  far  as  appears  from  any  evidence  in 
tlie  case,  went  into  the  hands  of  the  defendant  association,  and  was  re- 
tained unconditionally,  till  returned  to  the  assistant  secretary  by  the 
secretary  immediately  after  the  death' of  the  insured,  which  occurred 
November  10,  1893. 

The  by-laws  show  that  it  was  the  duty  of  the  secretary  to  pay  to 
the  treasurer  of  the  association  on  the  1st  and  15th  of  each  month, 
all  moneys  collected,  taking  his  receipt  therefor.  As  the  money  paid 
on  these  assessments  was  not  returned  to  the  assistant  secretary  till 
after  the  death  of  the  insured,  it  is  presumed  to  have  come  into  the 
defendant's  possession  on  the  1st  day  of  November,  for  the  law  pre- 
sumes that  every  man  in  his  official  character  does  his  duty,  until  the 
contrary  is  shown. 

The  matter  of  reinstatement  of  the  insured  was  never  laid  before 
or  considered  by  the  executive  board. 

Assuming  that  the  payment  of  the  assessments  on  October  24,  1893,, 
was  too  late  to  meet  the  requirement  of  the  by-laws  of  the  association, 
the  question  remains  whether  the  defendant,  by  the  subsequent  assess- 
ment of  October  16,  1893,  the  reception  and  retention  of  the  money 
paid  upon  the  other  assessments,  with  no  notice  of  any  objection 
brought  home  to  the  assured,  waived  the  conditions  of  forfeiture,  and 
its  right  to  avoid  the  certificate  of  insurance  on  that  ground. . 

We  think  it  did 

Even  where  assessments  have  been  levied  and  paid  subsequent  to 
those  unpaid,  and  upon  which  a  forfeiture  might  have  been  claimed, 
it  has  been  held  that  such  subsequent  assessments  and  acceptance  of 
money  paid  upon  them  constituted  a  waiver  of  such  right  to  avoid 
a  certificate  for  delay  of  payment.  Rice  v.  Society,  146  Mass.  248, 
15  N.  E.  624. 

In  that  case  the  court  say:  "Suppose  the  payment  of  the  former 
assessment  had  never  been  made  at  all,  and  the  company,  without  in- 
sistmg  upon  the  nonpayment  as  a  ground  of  forfeiture,  had  levied 
new  assessments  upon  the  assured,  which  were  all  duly  paid  and  ac- 
cepted without  condition,  could  it  be  contended  that  there  was  no 
waiver?  An  unconditional  acceptance  upon  assessment  waives  all  for- 
mer known  grounds  of  forfeiture,  and  this  effect  is  not  varied  or  lim- 
ited because  an  acceptance  of  a  former  assessment  had  been  on  con- 
dition, and  had  not  amounted  to  such  waiver." 

This  principle  has  oftentimes  been  applied  in  cases  of  similar  char- 
acter, where  a  forfeiture  has  been  sought  on  the  part  of  the  insurer 
against  the  insured.  It  was  applied  in  Hodsdon  v.  Insurance  Co.,  97 
Mass.  144,  93  Am.  Dec.  72>,  where  it  was  held  that,  although  an  agent 
of  the  company  had  no  authority  to  bind  it  by  receiving  payment  of 
a  premium  after  it  was  due,  the  company  might  waive  it  at  any  time  ; 
and,  if  the  company  received  it  from  their  agent  after  it  was  due,  it 


SUBSEQUENT   PAROL   WAIVERS  269 

was  bound  to  inform  itself  of  the  time  when  it  had  been  paid  to  him ; 
and  that  by  receiving  it  from  him  without  inquiry  it  waived  the  right 
to  insist  on  delay  of  payment  as  a  ground  of  forfeiture  of  the  policy. 

So  in  Insurance  Co.  v.  Wolflf,  95  U.  S.  326,  24  L.  Ed.  387,  where 
forfeiture  was  set  up  for  nonpayment  of  the  premium  at  the  time  it 
became  due,  but  which  was  subsequently  paid  to  an  agent  of  the  com- 
pany, and  a  receipt  delivered  for  the  same.  There  the  premium  was 
tendered  back  after  the  death  of  the  insured,  and  the  receipt  demand- 
ed. But  the  court  held  that  the  company,  by  the  receipt  of  the  pre- 
mium, waived  the  forfeiture  for  nonpavment  at  the  stipulated  time. 

And  in  Insurance  Co.  v.  Raddin,  120  U.  S.  183,  7  Sup.  Ct.  500,  30 
L.  Ed.  644,  the  court  held  that  the  acceptance  by  insurers  of  payment 
of  a  premium,  after  they  know  that  there  has  been  a  breach  of  a  con- 
dition of  the  policy,  is  a  waiver  of  the  right  to  avoid  the  policy  for 
that  breach.  "To  hold  otherwise,"  say  the  court,  "would  be  to  main- 
tain that  the  contract  of  insurance  requires  good  faith  of  the  assured 
only,  and  not  of  the  insurers,  and  to  permit  insurers,  knowing  all  the 
facts,  to  continue  to  receive  new  benefits  from  the  contract,  while  they 
decline  to  bear  its  burdens." 

This  principle  is  too  firmly  established  to  be  questioned,  and  the 
authorities  are  numerous  where  this  doctrine  has  been  applied,  and 
such  is  the  current  of  modern  decisions.  Among  the  cases  where  this 
rule  has  been  applied,  in  addition  to  the  foregoing,  are  the  following-, 
as  a  few  of  the  more  important  ones :  Bouton  v.  Insurance  Co.,  25 
Conn.  542;  Bevin  v.  Insurance  Co.,  23  Conn.  244;  Viele  v.  Insurance 
Co.,  26  Iowa,  9,  96  Am.  Dec.  83 ;  Insurance  Co.  v.  Slockbower.  26 
Pa.  199;  Frost  v.  Insurance  Co.,  5  Denio  (N.  Y.)  154.  49  Am.  Dec. 
234;  Wing  v.  Harvey,  5  De  Gex,  ^I.  &  G.  265,  270;  Shea  v.  As- 
sociation, 160  Mass.  289,  294,  35  X.  E.  855,  39  Am.  St.  Rep.  475; 
Rice  V.  Society,  146  Mass.  248,  15  X.  E.  624;  Insurance  Co.  v.  X^'or- 
ton,  96  U.  S.  234,  24  L.  Ed.  689 ;  Appleton  v.  Insurance  Co.,  59  X. 
H.  541,  47  Am.  Rep.  220. 

In  Shea  v.  Association,  supra,  where  the  defense  set  up  forfeiture 
for  nonpayment  within  the  stipulated  time,  the  court  held  that,  where 
the  company  receives  and  retains  the  money,  but  seeks  to  make  its 
acceptance  conditional,  it  must  see  to  it  that  notice  to  that  effect  is 
actually  brought  home  to  the  insured,  and  that  the  acceptance  of  mon- 
ey under  an  assessment  after  the  expiration  of  the  time  of  payment 
constitutes  a  waiver  of  all  objection  growing  out  of  the  delay. 

The  conditions  of  forfeiture  contained  in  the  contract  of  insurance 
are  for  the  benefit  of  the  association,  and,  of  course,  can  be  waived 
by  it  either  before  or  after  they  are  broken.  Being  inserted  for  its 
benefit,  it  lies  with  the  association  to  say  whether  or  not  they  shall 
be  enforced  or  waived.  Forfeitures  are  not  favored  in  law,  for,  as 
was  said  in  Insurance  Co.  v.  Xorton,  96  U.  S.  234,  242  (24  L.  Ed. 
689),  "they  are  often  the  means  of  great  oppression  and  injustice." 

It  is  true  that  in  life  insurance  time  of  payment  is,  as  a  general 


270  WAIVER  AND   ESTOPPEL 

rule,  material,  and  cannot  be  extended  b}^  courts  against  the  assent  of 
the  company.  But  it  is  equally  true  that,  where  such  assent  is  given, 
or  where  it  may  be  inferred  from  the  acts  and  conduct  of  the  par- 
ties to  the  contract,  courts  are  liberal  in  construing  the  transaction  in 
favor  of  avoiding  a  forfeiture.  Leslie  v.  Insurance  Co.,  63  N.  Y. 
27;  Helme  v.  Insurance  Co.,  61  Pa.  107,  100  Am.  Dec.  621.  And, 
while  a  waiver  is  the  intentional  relinquishment  of  a  known  right,  it 
may  be  inferred  from  any  circumstances  which  show  that  the  parties 
understood  the  payment  of  a  premium,  when  due,  would  not  be  re- 
quired, or  a  forfeiture  claimed.  Currier  v.  Insurance  Co.,  53  N.  H. 
538,  549,  552;  Pierce  v.  Insurance  Co.,  50  N.  H.  297,  9  Am.  Rep.  235 ; 
Heaton  v.  Insurance  Co.,  7  R.  I.  502;  North  Berwick  Co.  v.  New 
England  F.  &  M.  Ins.  Co.,  52  Me.  336,  340;  Insurance  Co.  v.  Wolff, 
95  U.  S.  326,  330,  24  L.  Ed.  387. 

But  it  is  claimed  in  defense  that  the  paym.ent  of  the  assessments  to 
the  assistant  secretary  was  unauthorized,  he  having  no  authority  to 
bind  the  association  by  the  receipt  of  money  upon  assessments  unless 
the  same  was  paid  within  the  time  limited  for  their  payment. 

This  would  undoubtedly  be  true,  were  it  not  for  the  fact  that  the 
money  thus  paid  to  him  was  immediately  forwarded  to  the  secretary 
of  the  association,  whose  duty  it  was  to  turn  the  money  over  to  the 
treasurer  at  the  beginning  and  middle  of  each  month.  It  was  paid 
to  the  man  whose  duty  it  was  to  receive  it  in  the  due  course  of  busi- 
ness. No  notice  was  ever  brought  home  to  the  assured  by  the  associ- 
ation or  any  of  its  officers  that  it  was  not  properly  paid.  Notwith- 
standing the  case  shows  that  the  money  was  returned  to  the  assistant 
secretary  immediately  after  the  death  of  the  insured,  the  assistant  sec- 
retary claims  it  was  not  thus  returned  till  three  months  after  his  death. 
From  the  evidence  and  the  presumption  of  law  that  those  acting  of- 
ficially do  their  duty  till  the  contrary  is  proved,  it  would  appear  that 
the  money  was  in  the  hands  of  the  treasurer  at  the  death  of  the  in- 
sured. If  in  the  treasurer's  hands,  it  was  received  by  the  association. 
Swett  V.  Society,  78  Me.  541,  7  Atl.  394.  In  this  particular  the  case 
at  bar  is  to  be  distinguished  from  the  case  of  Lyon  v.  Society,  153 
Mass.  83,  26  N.  E.  236,  cited  by  counsel  for  defense.  In  that  case 
the  money  never  went  into  the  possession  of  the  company  or  its  treas- 
urer. 

The  difficulty,  where  a  waiver  is  alleged,  in  the  absence  of  written 
proof  of  the  fact,  generally  arises  from  the  effect  to  be  given  to  the 
acts  of  agents  in  their  dealings  with  the  assured.  Undoubtedly  such 
agents,  if  they  bind  the  company,  whether  it  be  a  mutual  benefit  or 
stock  company,  must  have  authority  to  waive  a  compliance  with  the 
conditions  upon  a  breach  of  which  a  forfeiture  is  claimed,  or  to  waive 
the  forfeiture  when  once  incurred,  or  their  acts  and  dealings  in  waiv- 
ing such  compliance  or  forfeiture  must  be  subsequently  ratified  or 
approved  by  the  company.  Swett  v.  Society,  supra.  It  is  upon  this 
latter  ground  that  many  of  the  decisions  have  turned  when  the  ques- 


SUBSEQUENT   PAROL    WAIVERS  271 

tion  of  waiver  of  compliance  or  of  forfeiture  has  come  before  the 
courts.  The  law  of  agency,  to  be  sure,  is  the  same  whether  applied 
to  the  act  of  the  agent  in  undertaking  to  continue  the  insurance  or  to 
any  other  act  for  which  the  principal  is  sought  to  be  held  responsible. 

The  rule  that  no  one  shall  be  permitted  to  deny  that  he  intended  the 
natural  consequences  of  his  acts,  which  have  induced  others  to  act 
upon  them,  is  as  applicable  to  insurance  companies  as  to  individuals. 

If  applied  to  the  case  at  bar,  this  principle  will  serve  to  solve  the 
question  presented.  The  association,  notwithstanding  the  assistant  sec- 
retary was  not  authorized  to  waive  a  compliance  with  the  conditions 
annexed  to  the  contract  of  insurance,  received  from  their  agents  the 
money  paid  by  the  assured  upon  assessments  levied  upon  him.  It  was 
not  received  upon  any  conditions  accompanying  such  acceptance,  as 
in  the  case  of  Shea  v.  Association,  supra.  Nor  was  it  ever  returned 
to  the  assured,  nor  was  there  any  notice  of  objection  to  its  payment, 
acceptance,  or  retention  ever  given  to  the  assured.  From  anything 
that  appears  in  the  case,  it  still  remains  in  the  hands  of  the  association 
or  its  agents. 

The  analogy  between  the  case  under  consideration  and  that  of  Rice 
v.  Society,  146  jNIass.  248,  15  N.  E.  624,  is  very  striking.  In  that  case, 
as  in  this,  the  defendant  was  a  mutual  insurance  company.  There  was 
default  of  payment  of  premiums  when  due,  and  subsequent  assessment 
by  the  company,  as  in  this,  and  payment  made  and  received  after  such 
default.  There  was  no  determination  by  the  company  that  the  cer- 
tificate, for  the  time  being,  should  be  considered  or  treated  as  not  in 
force  or  suspended ;  and  in  making  the  subsequent  assessments  there 
was  no  act  of  the  company  manifesting  intention  to  exclude  the  as- 
sured; nor  was  there  any  condition  annexed  to  the  assessments  sub- 
sequently made,  or  to  the  acceptance  of  the  payment  of  them  by  the 
assured.  And  there,  as  in  other  cases  to  which  we  have  referred,  the 
company  was  held  to  have  waived  its  right  to  insist  upon  a  forfeiture 
of  the  certificate  upon  the  ground  that  the  subsequent  assessments  and 
acceptance  of  the  money  paid  upon  them,  constituted  such  waiver. 

The  language  of  the  court  in  the  case  of  Insurance  Co.  v.  Wolfif,  95 
U.  S.  326,  330,  24  L.  Ed.  387,  may  well  be  applied  to  the  case  at 
bar.  "If,  therefore,"  say  the  court,  "the  conduct  of  the  company  in 
its  dealings  with  the  assured  in  this  case  *  *  *  has  been  such  as 
to  induce  a  belief  that  so  much  of  the  contract  as  provides  for  a  for- 
feiture if  the  premium  be  not  paid  on  the  day  it  is  due  would  not  be 
enforced  if  payment  were  made  within  a  reasonable  period  afterwards, 
the  company  ought  not,  in  common  justice,  to  be  permitted  to  allege 
such  forfeiture  against  one  who  has  acted  upon  the  belief,  and  subse- 
quently made  the  payment.  And  if  the  acts  creating  such  belief  were 
done  by  the  agent,  and  were  subsequently  approved  by  the  company, 
either  expressly  or  by  receiving  and  retaining  the  premiums,  the  same 
consequences  should  follow." 


272  WAIVER   AND   ESTOPPEL 

As  the  case  is  before  this  court  on  an  agreed  statement  of  facts, 
the  exceptions  having  been  waived,  the  entry  should  be,  judgment  for 
plaintiff.^ 


IV.  Contemporaneous  Parol  Waivers  ^^ 


GURNETT  V.  ATLAS  MUT.  INS.  CO. 

(Supreme  Court  of  Iowa,  1904.     124  Iowa.  547,   100   N.  W.  542.) 

Action  by  T.  F.  Gurnett  against  the  Atlas  Mutual  Insurance  Com- 
pany. The  defendant  company  issued  a  policy  for  $1,500  on  plain- 
tiff's property,  for  a  term  of  one  year  from  February  9,  1902.  The 
property  was  destroyed  by  fire  June  10,  1902.  There  was  a  judgment 
for  plaintiff,  and  defendant  appeals.^  ^ 

Ladd,  J.  The  policy  of  insurance  sued  on  contained  the  following 
conditions :  "The  total  insurance  permitted  not  to  exceed  at  any  time 
three-fourths  of  the  cash  value  of  the  property  insured  and  to  be  con- 
current herewith.  *  *  *  It  is  understood,  and  the  insured  by  ac- 
cepting this  policy  so  agrees,  unless  permission  signed  by  the  secre- 
tary be  endorsed  hereon  or  added  to  or  attached  hereto,  if  the  insured 
now  has  or  shall  hereafter  make  or  procure  any  other  contract  of 
insurance,  whether  valid  or  not,  on  property  covered  in  whole  or  in 
part  by  this  policy,  in  excess  of  the  amount  permitted  above,  or  in  case 
the  other  insurance  is  permitted  and  the  additional  insurance  be  not 
valid  and  collectible  insurance,  *  *  *  then,  and  in  either  such 
case,  it  shall  be  held  to  be  an  election  upon  the  part  of  the  insured 
to  cancel  said  policy  and  the  same  shall  be  void  and  shall  stand  can- 
celled upon  the  happening  of  any  of  the  foregoing  events.  *  *  * 
This  company  shall  not  be  liable  under  this  policy  for  a  greater  propor- 
tion of  any  loss  on  the  described  property  *  *  *  than  the  amount 
hereby  insured  shall  bear  to  the  whole  insurance,  whether  valid  or  not, 
by  solvent  or  insolvent  insurers,  covering  said  property." 

There  was  other  insurance  amounting  to  $2,700,  of  which  a  policy 
of  $1,000  issued  by  the  Des  ]\Ioines  Fire  Insurance  Company  was  in- 
valid, because  the  additional  insurance  exceeded  that  permitted.  The 
plaintiff  received  something  from  it,  however,  in  settlement  of  his 
claim  of  loss.     The  jury,  in  answer  to  special  interrogatories,  found 

9  To  the  same  effect,  see  .^tna  Life  Ins.  Co.  v.  Fallow,  110  Tenn.  720.  77 
S.  W.  937  (1903).  For  a  discussion  of  principles,  see  Cooley,  Briefs  on  the 
Law  of  Insurance,  vol.  3,  p.  2699  et  seq. 

10  For  discussion  of  principles,  see  Vance  on  Insurance.  §  124.  See,  also. 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  3,  p.  2619  et  seq. 

11  The  statement  of  facts  Is  rewritten. 


CONTEMPORANEOUS    PAROL   WAIVERS  27:5 

the  value  of  the  property  to  have  been  $5,000  at  the  date  of  the  poHcy 
and  $3,070.97  when  destroyed.  It  will  be  observed  that  when  de- 
stroyed the  property,  valued  at  $3,070.97,  was  insured  for  $4,200,  and 
therefore  that  the  insurance  exceeded  three-fourths  of  the  value.  For 
this  reason  the  appellant  insists  that  the  policy  was  void.  Doubtless 
this  would  be  true  were  defendant  in  a  situation  to  urge  the  defense. 

The  principle  is  well  settled  that  when  an  insurance  policy  contains 
a  condition  which  renders  it  void  at  its  inception,  and  this  is  known 
to  the  insurer,  it  will  be  held  to  have  waived  such  condition  by  re- 
ceiving the  premium  and  issuing  its  policy.  Williams  v.  Niagara  Fire 
Ins.  Co.,  50  Iowa,  561,  568;  Carey  v.  Home  Ins.  Co.,  97  Iowa,  619, 
66  N.  W.  920;  Hagan  v.  Merchants'  Ins.  Co.,  81  Iowa,  321,  331,  46 
N.  W.  1114,  25  Am.  St.  Rep.  493.  See,  also.  Independent  School  Dist. 
v.  Fidelity  Ins.  Co.,  113  Iowa,  65,  84  N.  W.  956;  Fitchner  v.  Fidelity 
Mutual  Fire  Ass'n,  103  Iowa,  276,  72  N.  W.  530.  The  evidence  with- 
out dispute  showed  that  when  the  defendant's  agent  negotiated  the 
insurance  he  was  informed  that  the  property  was  worth  but  $5,000, 
and  it  was  then  covered  by  three  policies  issued  by  other  companies, 
amounting  in  the  aggregate  to  $2,700.  Knowledge  of  the  agent  is 
to  be  imputed  to  the  company,  and  in  issuing  its  policy  of  $1,500  in 
addition  to  the  above  amount  the  defendant  must  be  held  to  have 
done  so  knowing  that  this  increased  the  insurance  to  more  than  three- 
fourths  of  the  value  of  the  property.  The  law  is  charitable  enough 
to  assume,  in  the  absence  of  any  showing  to  the  contrary,  that  an 
insurance  company  intends  to  execute  a  valid  contract  in  return  for 
the  premium  received ;  and  when  the  policy  contains  a  condition  which 
renders  it  void  at  its  inception,  and  this  result  is  known  to  the  insurer, 
it  will  be  presumed  to  have  intended  to  waive  the  condition,  and  to 
execute  a  binding  contract,  rather  than  to  have  deceived  the  insured 
into  thinking  his  property  is  insured  when  it  is  not,  and  to  have  taken 
his  money  without  consideration. 

Appellant  suggests  that  a  distinction  should  be  made,  in  the  matter 
of  imputing  the  agent's  knowledge  to  the  insurer,  between  a  recording 
and  a  soliciting  agent.  Possibly,  but  this  court  has  held  otherwise, 
as  appears  from  the  cited  cases,  following  the  ruling  of  a  bare  majority 
of  the  court  in  Jordan  v.  State  Insurance  Co.,  64  Iowa,  216,  19  N.  W. 
917.  It  should  be  added  that  all  the  record  shows  with  respect  to  the 
class  to  which  defendant's  agent  belonged  is  that  the  agent  at  one 
time  solicited  an  application,  and  that  the  policy  was  mailed  to  him. 
He  was  informed  of  the  facts  when  arranging  for  the  insurance,  and, 
as  he  was  acting  for  the  company  in  that  particular  transaction,  it 
will  be  charged  with  the  knowledge  he  acquired  therein.  To  the  sug- 
gestion that  a  waiver  of  excessive  insurance  when  the  policy  issued 
will  not  include  a  subsequent  excess,  it  is  to  be  said  that  the  latter, 
under  the  terms  of  the  policy,  invadidates  it  only  when  occasioned  by 
additional  insurance  ;  and  none  such  was  taken  out  by  plaintiff.  More- 
CooLEY  Ins. — 18 


274  -WAIVER  AND  ESTOPPEL 

over,  it  does  not  appear  that  the  insurance  was  less  than  or  merely 
equaled  three-fourths  of  the  value  of  the  property  at  any  time,  and 
therefore  the  condition  of  things  to  which  the  company  assented  con- 
tinued up  to  the  time  of  the  loss. 

2.  It  is  further  urged  that,  as  the  policy  issued  by  the  Des  Moines 
Fire  Insurance  Company  was  invalid,  the  plaintiff,  under  the  terms 
of  the  policy,  should  be  held  to  have  canceled  it,  and  the  policy  sued 
on  be  declared  void.  But  the  clause  of  the  contract,  "or  in  case  the 
other  insurance  was  permitted  and  the  additional  insurance  be  not 
valid  and  collectible  insurance,  *  *  *  it  shall  be  an  election  to 
cancel  said  policy,"  relates  to  insurance  procured  subsequent  to  the 
issuance  of  the  policy.  Funk  v.  Association,  103  Iowa,  660,  72  N. 
W.  774. 

The  policy  stipulated  that  the  company  should  not  be  liable  for  more 
than  its  pro  rata  share  of  the  entire  insurance,  valid  or  invalid,  and 
appellant  argues  that  it  should  be  required  to  pay  but  ^^42  of  the 
loss,  instead  of  ^V3  2,  as  held  by  the  district  court.  One  thousand 
dollars  of  the  insurance  was  invalid,  and  section  1746  of  the  Code 
provides  that  "no  condition  or  stipulation  in  the  policy  of  insurance 
fixing  the  amount  of  the  liability  or  recovery  under  such  policy  with 
reference  to  the  pro  rata  with  other  insurance  on  property  insured  shall 
be  valid  except  as  to  other  valid  and  collectible  insurance,  any  agree- 
ment to  the  contrary  notwithstanding."  The  stipulation  of  the  policy 
in  so  far  as  it  undertook  to  include  the  void  policy  in  the  matter  of 
prorating  ought  not  to  be  enforced.  That  the  Des  Aloines  Fire  In- 
surance Company  may  have  regarded  its  policy  valid,  or  paid  something 
in  compromise  to  avoid  litigation,  can  make  no  difference.  The  statute 
is  to  be  read  into  the  contract,  and  the  rights  of  the  parties  thereunder 
became  fixed  at  the  time  of  the  loss,  and  could  not  be  affected  by 
what  might  subsequently  happen  between  the  insured  and  third  par- 
ties ;  especially  when  the  total  amount  received  by  the  insured  does 
not  equal  the  loss  suffered.  Hayes  v.  Milford  Ins.  Co.,  170  Mass.  492, 
49  N.  E.  754;  Thomas  v.  Builders'  Ins.  Co.,  119  Mass.  121,  20  Am. 
Rep.  317;  Turner  v.  Meridan  Fire  Ins.  Co.  (C.  C.)  16  Fed.  460.  Af- 
firmed. 


FORWARD  V.  CONTINENTAL  INS.  CO. 

(Court  of  Appeals  of  New  York,  lS9i.     142  N.  Y.  382,  37  N.  E.  615,  25  L.  R. 

A.  637.) 

Action  by  John  D.  Forward  against  the  Continental  Insurance  Com- 
pany on  a  fire  policy.  Verdict  for  plaintiff.  The  general  term  (66 
Hun,  546,  21  N.  Y.  Supp.  664)  overruled  exceptions  by  defendant,  and 
defendant  appeals. 

O'Brien,  J.  The  judgment  in  this  case  was  recovered  upon  a  pol- 
icy of  insurance  issued  April  23,  1891,  at  one  year,  upon  a  store  and 


CONTEMPORANEOUS    PAROL    WAIVERS  275 

the  goods  therein,  which  were  owned  by  the  plaintiff.  By  the  terms 
of  the  poHcy  the  risk  was  distributed  as  follows :  Upon  the  store,  a 
sum  not  exceeding  $1,000;  the  goods,  a  sum  not  exceeding  $1,200; 
and  the  furniture  and  safe,  a  sum  not  exceeding  $100.  The  entire 
property  was  destroyed  by  fire  on  the  27th  of  September,  1891.  The 
complaint  alleges,  and  the  answer  admits,  that  the  loss  was  adjusted 
and  determined  between  the  plaintiff  and  a  general  agent  of  the  de- 
fendant on  the  6th  of  October  following  at  $1,950,  and  the  recovery 
was  for  this  sum  and  interest. 

The  only  defense  interposed  by  the  answer,  or  urged  upon  the  ar- 
gument of  the  appeal  in  this  court,  was  a  breach  on  the  part  of  the 
plaintiff  of  one,  or  perhaps  two,  of  the  conditions  contained  in  the 
following  clause  of  the  policy :  "This  entire  policy,  unless  otherwise 
provided  by  agreement  indorsed  hereon  or  added  hereto,  shall  be  void 

*  *  *  if  the  interest  of  the  insured  be  other  than  unconditional, 
sole  ownership,  *  *  *  or  if  the  subject  of  insurance  be  personal 
property,    and    be    or    become    incumbered    by    a    chattel    mortgage. 

*  *  *  In  any  matter  relating  to  this  insurance,  no  person,  unless 
duly  authorized  in  writing,  shall  be  deemed  the  agent  of  this  company. 

*  *  *  This  policy  is  made  and  accepted  subject  to  the  foregoing 
stipulations  and  conditions,  together  with  such  other  provisions,  agree- 
ments, or  conditions  as  may  be  indorsed  hereon  or  added  hereto ;  and 
no  officer,  agent,  or  other  representative  of  this  company,  shall  have 
power  to  waive  any  provision  or  condition  of  this  policy,  except  such 
as,  by  the  terms  of  this  polic}^  may  be  the  subject  of  agreement,  in- 
dorsed hereon  or  added  hereto;  and,  as  to  such  provisions  and  condi- 
tions, no  ofiicer,  agent,  or  other  representative  of  this  company  shall 
have  such  power,  or  be  deemed  or  held  to  have  waived  such  provi- 
sions or  conditions,  unless  such  waiver,  if  any,  shall  be  written  upon 
or  attached  hereto.  Nor  shall  any  privilege  or  permission  affecting  the 
insurance  under  the  policy  exist,  or  be  claimed  by  the  insured,  unless 
so  written  or  attached." 

It  was  shown  at  the  trial  that  the  plaintiff,  about  two  months  be- 
fore the  policy  had  been  issued  to  him,  had  executed  and  delivered 
to  his  brother  an  instrument  in  the  form  of  a  bill  of  sale  upon  the 
stock  of  goods,  furniture,  and  fixtures  in  the  store,  which  on  March 
3,  1891,  was  filed  in  the  town  clerk's  office.  This  instrument,  in  con- 
sideration of  $500,  purports  to  transfer  the  plaintiff's  interest  in  the 
property  absolutely  to  his  brother.  The  proof  at  the  trial  tended  to 
show  that  there  was  in  fact  no  consideration  for  the  transfer ;  that 
it  was  colorable,  merely,  and  made  between  the  two  brothers  with 
reference  to  some  litigations  pending  or  threatened  against  the  plain- 
tiff. The  brother  never  in  fact  paid  anything  as  a  consideration  for 
the  transfer,  and  no  debt  was  due  or  owing  to  him  by  the  plaintiff. 
He  never  in  fact  claimed  any  title  to  the  property,  or  any  right  to 
its  possession,  which  always  remained  in  the  plaintiff.  There  was 
also  proof  that  the  existence  of  this  bill  of  sale,  and  its  true  consid- 


276  WAIVER   AND   ESTOPPEL 

eration,  character,  and  purpose,  were  disclosed  to  the  defendant's  agent 
before  the  policy  was  issued  or  delivered. 

The  court  submitted  two  questions  to  the  jury:  (1)  Whether  the 
defendant,  notwithstanding  the  condition  of  the  policy,  had  knowledge 
of  all  the  facts  respecting  the  existence,  nature,  and  purpose  of  the 
bill  of  sale;  instructing  them  that  the  knowledge  of  the  agent  was 
the  knowledge  of  the  company,  and  that,  if  they  found  that  the  de- 
fendant had  knowledge  of  the  facts,  the  policy  was  not  avoided.  (2) 
Whether  a  statement  contained  in  the  proofs  of  loss,  to  the  effect  that 
there  was  no  incumbrance  on  the  property  at  the  time,  was  willfully 
false,  and  known  to  be  so  by  the  plaintiff  when  he  made  the  proofs, 
and  was  made  for  the  purpose  of  defrauding  the  defendant;  instruct- 
ing them  that,  if  it  was  not,  then  it  did  not  amount  to  false  swearing, 
within  the  intent  and  meaning  of  a  condition  in  the  policy.  The  ver- 
dict was  in  favor  of  the  plaintiff,  and  hence  all  the  disputed  facts  ma- 
terial to  the  questions  of  law  must  be  deemed  to  be  established  in  the 
plaintiff's  favor. 

It  was  said  by  Judge  Andrews  in  Walsh  v.  Insurance  Co.,  73  N. 
Y.  11,  upon  the  authority  of  many  cases,  that  "conditions  for  the  pre- 
payment of  premium,  and  the  like,  which  enter  into  the  validity  of 
a  contract  of  insurance  at  its  inception,  may  be  waived  by  agents, 
and  are  waived,  if  so  intended,  although  they  remain  in  the  policy 
when  delivered,  and  that  a  contract  for  renewal  is,  for  the  purpose, 
to  be  treated  as  the  original  contract."  It  has  uniformly  been  held 
by  this  court  that  a  condition  of  this  character  in  a  contract  of  in- 
surance will  not  operate  to  avoid  it  after  a  loss,  providing  the  com- 
pany, before  delivering  the  policy,  had  knowledge  of  the  fact  that  the 
insured,  notwithstanding  the  warranty,  or  the  statement  and  the  con- 
dition, was  not  the  sole  owner,  or  that  it  was  incumbered.  In  such 
cases  the  company  is  deemed  to  have  waived  the  condition,  or  by  the 
delivery  of  the  policy  with  the  condition  avoiding  it  in  case  the  in- 
sured is  not  the  sole  owner,  or  that  the  property  is  incumbered,  and 
accepting  the  premium,  is  held  estopped  from  setting  up  the  condition 
as  a  defense.  It  was  never  supposed  that  such  a  condition  was  in- 
tended to  apply  to  a  state  of  facts  in  regard  to  which  the  company  had 
been  fully  informed  when  it  accepted  the  risk.  The  cases  on  this  point 
are  numerous,  and  it  is  impossible  to  make  any  distinction  in  princi- 
ple between  the  conditions  considered  and  that  involved  in  the  case 
at  bar.  Van  Schoick  v.  Insurance  Co.,  68  N.  Y.  434;  Whithed  v. 
Insurance  Co..  76  N.  Y.  415,  32  Am.  Rep.  330;  Woodruff  v.  Insur- 
ance Co.,  83  N.  Y.  134;  Short  v.  Insurance  Co.,  90  N.  Y.  16,  43  Am. 
Rep.  138;  McNally  v.  Insurance  Co.,  137  N.  Y.  389,  33  N.  E.  475; 
Carpenter  v.  Insurance  Co.,  135  N.  Y.  298,  31  N.  E.  1015;  Cross  v. 
Insurance  Co.,  132  N.  Y.  133,  30  N.  E.  390;  Berry  v.  Insurance  Co., 
132  N.  Y.  49,  30  N.  E.  254,  28  Am.  St.  Rep.  548. 

In  these  cases  it  was  held,  either  that  the  company  had  waived  the 
condition,  or  was  estopped  by  the  delivery  of  the  policy  and  the  re- 


CONTEMPORANEOUS  PAROL  WAIVERS  277 

ceipt  of  the  premium,  since,  under  such  circumstances,  it  could,  not  be 
supposed  that  it  intended  to  deliver  to  the  insured  a  policy  which  it 
knew  to  be  void.  When  the  underwriter,  before  the  inception  of  the 
contract,  is  informed  by  the  owner  that  the  property  is  incumbered, 
but  still  delivers  the  policy  with  the  condition  embodied  in  it,  then,  as 
it  seems  to  me,  it  is  not  so  much  a  question  of  waiver  or  estoppel, 
as  a  question  whether  the  condition  ever  attached  or  operated,  upon 
the  facts  thus  disclosed.  It  can,  of  course,  operate  in  the  future  upon 
transfers  or  incumbrances,  as  the  facts  arise,  and  then  the  question 
is  one  of  waiver.  But,  when  the  facts  are  all  known  before  any  con- 
tract is  made,  a  condition  against  a  state  of  things  known  by  all  the 
parties  to  exist  cannot  be  deemed  to  be  within  their  intention  or  pur- 
pose. This  case  cannot  be  taken  out  of  the  rule,  by  any  possible  dis- 
tinction, unless  it  be  by  the  character  and  powers  of  the  agent  of  the 
defendant,  to  whom,  upon  the  finding  of  the  jury,  the  facts  were  com- 
municated. 

It  is  urged  that  the  cases  cited  do  not  apply,  for  the  reason  that 
the  waiver  there  was  by  a  general  agent.  That  may  be  true  with  re- 
spect to  the  four  cases  last  cited.  But  it  does  not  seem  to  me  to  be 
so  much  a  question  of  power  or  authority  in  an  agent  to  waive  a  con- 
dition in  the  contract,  as  of  knowledge  by  the  company,  through  its 
agent,  of  the  real  facts.  In  the  Carpenter  Case,  supra,  the  informa- 
tion as  to  the  true  state  of  the  title  was  given  to  a  mere  clerk  of  the 
general  agent ;  and  we  held  that  such  knowledge  was  imputable  to 
the  company  through  the  general  agent,  for  whom  the  clerk  acted  in 
soliciting  the  insurance,  and  that  a  condition  of  this  character  remain- 
ing in  the  policy  did  not  avoid  it.  Now,  the  powers  of  the  agent  in 
this  case  were  certainly  much  broader  than  those  of  the  clerk  in  the 
case  referred  to.  In  this  case  the  person  to  whom  the  information  was 
communicated  was  certainly  an  agent  appointed  by  the  defendant  itself, 
while  in  that  the  person  had  no  authority  directly  from  the  company, 
but  was  a  mere  servant  or  clerk,  acting  for,  and  solely  under  the  au- 
thority of,  the  agent.  The  agent,  in  this  case,  and  the  clerk,  in  the 
other,  were  engaged  in  precisely  the  same  duty,  and  performing  the 
same  service,  when  they  acquired  the  knowledge  as  to  the  condition 
of  the  property  and  the  state  of  the  title.  They  were  both  soliciting 
insurance,  and  ascertaining  the  character  and  condition  of  the  prop- 
erty upon  which  the  risk  was  about  to  be  taken ;  and  I  am  unable  to 
suggest  any  reason  for  imputing  knowledge  in  the  one  case,  and  not 
in  the  other.  Moreover,  the  record  is  entirely  silent  as  to  any  facts 
tending  to  show  that  in  this  case  the  agent  was  acting  in  pursuance 
of  a  special  or  limited  power.  On  the  face  of  the  policy,  he  appears 
to  be  the  duly-authorized  agent  of  the  defendant,  and  actually  did 
grant  special  permits,  and  waive  conditions  in  the  policy.  He  had 
power  to  waive  conditions,  providing  it  was  done  in  the  manner  stip- 
ulated in  the  policy ;  that  is  to  say,  in  writing.  He  had  power  to  so- 
licit insurance,  collect  premiums,  and  deUver  policies.     There  is  no 


278  WAIVER   AND   ESTOPPEL 

proof  in  the  record  that  the  plaintiff  ever  made  application  for  this 
policy,  written  or  otherwise,  or  that  he  touched  the  company  at  any 
point,  or  in  any  form,  except  through  this  agent.  The  fair  infer- 
ence from  the  proof  is  that  the  defendant  furnished  the  agent  with 
policies  duly  executed,  which  he  filled  up  and  delivered  at  his  discre- 
tion, reporting  the  facts  to  the  company.  There  is  nothing  on  the 
face  of  the  policy,  and  nothing  was  communicated  to  the  plaintiff,  to 
lead  him  to  believe  that  the  powers  of  the  agent  were  special  or  re- 
stricted. Insurance  companies,  doing  business  by  agencies  at  a  distance 
from  their  principal  place  of  business,  are  responsible  for  the  acts  of 
the  agent,  within  the  general  scope  of  the  business  intrusted  to  his 
care;  and  no  limitations  of  his  authority  will  be  binding  on  parties 
with  whom  he  deals,  which  are  not  brought  to  their  knowledge.  In- 
surance Co.  V.  Wilkinson,  13  WaU.  222,  20  L.  Ed.  617;  Merserau  v. 
Insurance  Co.,  66  N.  Y.  278;  Bodine  v.  Insurance  Co.,  51  N.  Y.  117, 
10  Am.  Rep.  566;  Arff  v.  Insurance  Co.,  125  N.  Y.  57,  25  N.  E. 
1073,  10  L.  R.  A.  609,  21  Am.  St.  Rep.  721. 

It  was  held  in  the  case  of  Ehis  v.  Insurance  Co.,  50  N.  Y.  402,  10 
Am.  Rep.  495,  that  an  agent  with  precisely  such  powers  as  I  have 
supposed  the  agent  in  this  case  possessed,  could  bind  the  company  by 
a  parol  contract  of  insurance,  while  an  application  for  a  policy  was 
pending,  but  none  delivered  till  after  a  loss.  I  am  unable  to  discover 
in  the  record  any  basis  for  the  contention  that  the  knowledge  of  the 
agent  as  to  the  existence  and  purpose  of  the  bill  of  sale  is  not  the 
knowledge  of  the  defendant.  On  the  contrary,  his  knowledge  of  the 
facts  is,  I  think,  imputable  to  his  principal.  So  far  as  appears,  the 
plaintiff  dealt  with  him  as  the  representative  of  the  company.  If  there 
were  in  fact  any  limitations  or  restrictions  on  his  powers  as  an  ordi- 
nary agent,  it  was  for  the  defendant  to  show  it.  His  commission  was 
not  put  in  evidence,  nor  any  proof  given  tending  to  show  that  he  was 
not  what  he  was  described  in  the  complaint, — the  defendant's  duly  au- 
thorized manager  or  agent  at  the  place  where  the  contract  was  made. 
There  were  no  other  means  of  communication  between  the  plaintiff 
and  the  defendant  employed.  So  far  as  appears,  he  made  the  con- 
tract for  his  principal,  and  the  knowledge  that  he  obtained  in  the 
course  of  the  business  was  the  knowledge  of  the  defendant. 

There  is  another  view  of  the  question  that  deserves  some  notice. 
Conditions  in  contracts  of  insurance  against  liability  when  the  prop- 
erty is  incumbered,  or  where  the  title  is  not  absolute  in  the  insured, 
are  inserted  for  the  purpose  of  guarding  against  the  moral  hazard  in- 
volved. When  the  transfer  or  incumbrance  is  merely  colorable  or 
nominal,  and  not  real  or  effective,  the  reasons  that  induced  the  stip- 
ulation do  not  apply.  Was  there  any  real  sale  or  transfer  of  this 
property,  within  the  meaning  of  the  policy?  Nothing  was  done,  ex- 
cept to  execute  and  file  a  paper.  There  was  no  intention,  in  fact,  to 
transfer  the  title,  or  vest  any  beneficial  interest  in  the  nominal  vendee. 
There  was  no  debt  to  be  enforced,  no  consideration  passed,  and  the 


WHAT   CONSTITUTES   A    WAIVER  279 

use  and  possession  remained  unchanged.  The  filing-  of  the  paper  add- 
ed nothing  to  its  validity.  It  was  not  a  mortgage,  nor  intended  as 
security  for  any  debt.  It  was  a  mere  paper  transfer,  without  con- 
sideration, and  without  delivery  of  possession;  and  while  it  had  the 
form,  it  had  none  of  the  legal  elements,  necessary,  even  between  the 
parties,  to  constitute  a  valid  contract  of  sale.  In  legal  effect,  it  was. 
I  think,  the  same  as  an  unexecuted  gift.  The  worst  that  can  be  said 
of  it  is  that  it  was  intended  to  defraud  creditors ;  but,  if  that  be  true, 
still  the  moral  hazard  which  was  the  basis  of  the  condition  of  the  pol- 
icy would  still  be  absent,  since  the  plaintiff's  interest  in  the  property 
at  the  time  of  the  insurance  was  in  fact  the  same  as  before  the  paper 
was  executed. 

There  is  no  legal  ground  upon  which  this  court  can  properly  dis- 
turb the  verdict,  and  the  judgment  should  therefore  be  affirmed. 


V.  V7hat  Constitutes  a  Waiver  ^^ 


SHIMP  V.  CEDAR  RAPIDS  INS.  CO. 
(Supreme  Court  of  Illinois,  1888.     124  111.  354,  16  N.  E.  229.) 

MuLKEY,  J.  This  was  an  action  of  assumpsit  brought  by  the  appel- 
lant, Julia  C.  Shimp,  in  the  Champaign  circuit  court  against  the  Cedar 
Rapids  Insurance  Company  to  recover  a  loss  by  fire  under  a  policy 
issued  to  her  by  the  company,  June  16,  1882,  on  her  dwelling,  furniture, 
etc.,  to  the  amount  of  $1,500.  The  premium  was  $21.50,  $10  of  which 
was  paid  in  cash,  and  a  note  given  for  $11.50,  payable  June  1,  1883, 
with  this  provision  in  it:  "This  note  is  given  for  insurance,  and  in 
case  of  loss  under  the  policy  for  which  it  is  given  becomes  due  and 
payable  on  the  date  of  such  loss," — which  we  understand  to  mean  that 
if  a  loss  occurred  for  which  the  company  was  liable  the  note  was  to 
become  due  on  the  date  of  such  loss.  The  property  covered  by  the 
risk  was  destroyed  by  fire  on  the  18th  of  February.  1883.  Suit  was 
commenced  on  the  12th  of  April  following,  and  the  premium  note  was 
paid  by  appellant  to  appellee  through  a  bank  on  the  28th  day  of  May, 
1883,  being  a  month  and  a  half  after  the  suit  was  commenced.  The 
plaintiff"  having  been  unsuccessful  in  both  the  lower  courts,  brings 
the  case  here  for  review. 

Appellee  set  up  as  a  defense  in  the  trial  court  certain  breaches  of 
the  conditions  in  the  policy.  Appellee's  counsel  do  not  question  the 
truth  of  the  facts  constituting  the  defense  thus  set  up,  but  insist  that 

12  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  125,  126. 


280  WAIVER  AND  ESTOPPEL 

the  company  is  not  in  a  position  to  avail  itself  of  that  or  any  other 
defense  by  reason  of  its  having  accepted  payment  of  the  premium 
note  after  having  obtained  full  knowledge  of  all  the  facts  and  cir- 
cumstances constituting  the  defenses  made  to  the  action.  Indeed,  it 
is  conceded  that  if  the  company  has  not  waived  the  right  to  set  up 
the  defenses  relied  on  by  reason  of  having  accepted  such  payment,  the 
judgments  below  are  right  and  ought  to  be  affirmed.  A  recurrence 
to  a  few  well-settled  principles  it  is  believed  will  relieve  the  question 
thus  presented  of  all  real  or  apparent  difficulty. 

That  the  company  had  a  complete  defense  to  the  action  on  the 
policy  at  the  time  the  suit  was  commenced  is  admitted.  But  this,  like 
most  other  rights,  is  one  that  might  be  abandoned,  released,  or  waived. 
There  is  no  pretense  that  it  has  been  released,  intentionally  abandoned, 
or  expressly  waived;  so  that  if  there  has  been  a  waiver  at  all,  it  is 
what  is  known  to  the  law  as  an  implied  waiver.  This  class  of  waivers 
is  frequently  to  be  met  with  in  the  law  of  insurance.  Thus,  where 
the  assured  has  been  guilty  of  some  breach  or  breaches  of  the  con- 
ditions of  the  policy,  and  the  insurer,  wath  full  knowledge  thereof,  dur- 
ing the  pendency  of  the  risk,  accepts  a  maturing  premium,  or  does 
any  other  act  recognizing  the  continued  existence  and  validity  of  the 
policy,  such  acceptance  or  other  act  will  operate  as  a  waiver  of  the 
right  of  forfeiture  occasioned  by  said  breaches,  unless  something  ap- 
pears to  show  that  it  was  not  intended  to  have  that  efifect,  and  that 
the  assured  so  understood  it.  This  well-recognized  rule  in  the  law  of 
insurance  is  founded,  at  least  in  part,  upon  the  fundamental  principle 
that  one  having  the  exclusive  right  to  terminate  an  executory  contract 
must  abrogate  it  altogether,  if  at  all.  He  cannot  be  heard  to  say  it  is 
valid  for  one  purpose,  and  in  the  same  breath  that  it  is  invalid  for  all 
other  purposes.  But  it  is  founded  chiefly  upon  the  general  principles 
of  common  honesty  and  natural  justice  which  the  law  exacts  of  man- 
kind in  their  intercourse  and  dealings  with  one  another. 

The  doctrine  of  waiver,  however,  in  our  opinion,  has  no  application 
whatever  to  the  facts  of  this  case.  The  act  of  the  company  relied 
on  as  a  waiver  of  its  right  of  defense  occurred  long  after  the  risk 
,  under  the  policy  had  terminated  by  the  happening  of  the  contingency 
insured  against;  long  after  the  defendant  had  refused  payment  of 
the  loss  on  the  ground  there  had  been  a  forfeiture  of  the  policy,  and 
in  the  face  of  an  action  brought  to  enforce  the  payment  of  such  loss. 

The  cases  relied  on  by  appellant's  counsel  differ  materially  in  their 
facts  from  the  present  case,  and  in  our  opinion  fall  far  short  of  sus- 
taining the  position  in  support  of  which  they  are  cited.  The  policy 
being  a  valid  obligation  and  binding  contract  between  the  parties, 
upon  its  delivery  to  the  assured,  the  risk  attached  and  commenced  run- 
ning, and  would  have  continued  to  run  until  the  loss  occurred,  but  for 
the  breach  of  its  conditions  by  the  assured  which  rendered  it  void  at 
the  election  of  the  company,  and  it  is  not  claimed  that  there  was  any 
waiver  of  such  breach  until  after  the  commencement  of  the  present 


WHAT    CONSTITUTES    A    WAIVER  281 

suit.  The  insurer  is  not  required  in  such  case  to  formally  declare  a 
forfeiture.  It  is  sufficient  to  set  it  up  by  way  of  defense,  when  sued 
for  the  loss,  as  was  done  in  this  case. 

The  waiver  or  estoppel  relied  on  cannot  prevail.  It  is  destitute  of 
that  element  which  is  most  essential  to  either.  It  does  not  appear,  nor 
is  it  claimed,  that  the  assured  has  been  misled  in  any  manner  to  its 
prejudice  by  the  company's  accepting  payment  of  the  note.  What 
other  course  of  conduct  could  the  appellant  have  pursued  than  that 
which  she  did?  She  simply  prosecuted  the  suit  previously  commenced 
by  her  against  the  company  to  its  termination ;  the  company  from  the 
beginning  denying  its  liability.  As  the  payment  of  the  note  is  the 
only  ground  on  which  she  now  claims  she  ought  to  recover,  it  is  clear 
such  payment  could  not  have  contributed  to  her  failure  to  succeed  in 
the  courts  below.  The  grounds  of  recovery  now  urged  are  in  legal 
effect  an  admission  that  there  was  no  right  of  recovery  when  her  suit 
w^as  commenced.  The  payment  to  the  company,  therefore,  so  far  from 
misleading  her  to  her  injury,  has,  according  to  her  present  contention, 
greatly  improved  her  prospect  of  success.  Upon  the  delivery  of  the 
policy,  and  commencement  of  the  risk,  the  appellee  acquired  a  present 
vested  right  in  the  premium  as  an  entirety.  The  payment  of  part  of 
it  was  merely  postponed,  and  consequently  the  company  had  the  right 
to  receive  the  money.  But,  however  this  may  be,  we  are  clearly  of 
the  opinion  that  the  receiving  of  it  did  not  operate  as  a  waiver  of  the 
breaches  of  the  conditions  of  the  policy. 

The  view  here  taken  is  fully  supported  bv  the  late  case  of  Insurance 
Co.  V.  Amerman,  119  111.  329,  10  N.  E.  225,  59  Am.  Rep.  799,  and  the 
authorities  there  cited.    Judgment  affirmed. 


282  RIGHTS    UNDER  THE    POLICY 


RIGHTS  UNDER  THE  POLICY 

I.  Vested  Rights  of  the  Beneficiary  ^ 

1.  In  Generai, 


RICKER  V.  CHARTER  OAK  LIFE  INS.  CO. 

(Supreme  Court  of  Minnesota,  1880.     27  Minn.   193,  6  N.   W.   771,  38  Am. 

Rep.  289.) 

Cornell,  J.  The  original  policy  was  issued  upon  the  application  of 
Samuel  Stanchfield,  the  person  whose  life  was  insured,  and  all  the 
provisions  stipulated  for  were  paid  by  him  before  the  death  of  Eliza- 
beth A.  Stanchfield,  who  was  his  wife.  By  its  terms  the  amount  of 
the  insurance  was  made  payable  upon  the  death  of  the  insured  to 
Elizabeth  A.  Stanchfield,  his  said  wife,  and-  in  case  of  her  death  before 
his  decease  the  same  was  to  be  paid  to  his  children,  or  to  their  guard- 
ian, if  minors,  for  their  use  and  benefit.  The  said  Elizabeth  died 
intestate  in  July,  1874,  leaving  surviving  her  said  husband,  the  plain- 
tififs  herein,  and  one  Joel  B.  Stanchfield,  who  were  the  issue  of  their 
marriage.  After  this  Samuel  Stanchfield  married  the  intervener  here- 
in, by  whom  he  had  one  child,  Carl  S.  Stanchfield,  both  of  whom  are 
now  living.  On  the  thirteenth  day  of  February,  1878,  Samuel  Stanch- 
field died.  After  the  decease  of  his  former  wife  and  his  marriage 
with  the  intervenor,  Louisa  Stanchfield,  the  insured  surrendered  the 
original  policy,  which  was  cancelled,  and  a  new  one  was  issued  in  its 
place  and  as  a  substitute  therefor,  bearing  the  same  date,  and  contain- 
ing the  same  terms  and  conditions,  save  that  it  was  therein  provided 
that  it  should  enure  "to  the  sole  and  separate  use  and  benefit"  of 
said  intervenor,  Louisa  Stanchfield,  his  second  wife.  The  legal  effect 
•  of  this  surrender  and  change,  and  the  competency  of  Samuel  Stanch- 
field to  make  it  without  the  consent  of  his  children,  are  the  important 
questions  presented  for  adjudication  in  this  case. 

Upon  the  allegations  and  admissions  in  the  pleadings  it  must  be 
presumed  that  the  original  policy  was  made,  and  its  stipulations  were 
to  be  performed,  in  the  state  of  Connecticut,  where  the  defendant 
company  was  created,  organized,  and  did  its  business,  and  hence  its 
legal  effect,  and  the  rights  and  obligations  of  the  parties  under  it,  de- 
pe'nd  upon  the  laws  of  that  state ;  but  as  no  evidence  appears  to  have 
been  given  as  to  what  those  laws  were,  they  are  to  be  taken  as  identical 

1  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  132-134.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3735  et  seq. 


VESTED   RIGHTS   OF   THE    BENEFICIARY  283 

with  the  common  law  of  this  state,  independent  of  any  statute  upon 
the  subject.  Upon  this  theory  the  case  has  been  argued,  and  it  will 
be  considered  and  determined  accordingly. 

The  general  rule  upon  the  subject,  as  stated  by  Mr.  Bliss,  is  this: 
"That  a  policy  of  life  insurance,  and  the  money  to  become  due  under 
it,  belong,  the  moment  it  is  issued,  to  the  person  or  persons  named  in 
it  as  beneficiary  or  beneficiaries,  and  that  there  is  no  power  in  the  per- 
son procuring  the  insurance,  by  any  act  of  his,  by  deed  or  by  will,  to 
transfer  to  any  other  person  or  persons  so  named.  The  person  desig- 
nated in  the  policy  is  the  proper  person  to  receipt  for  and  to  sue  for 
the  money.  The  principle  is  that  the  rights  under  the  policy  become 
vested  immediately  upon  its  being  issued,  so  that  no  person  other  than 
those  designated  in  it  can  assign  or  surrender  it,  and  that  in  such  as- 
signment or  surrender  all  the  persons  must  concur,  or  the  interest  of 
those  not  concurring  is  not  affected."  Bliss  on  Life  Ins.  (2d  Ed.)  §§ 
317,  Z2)7.  This  is  held  to  be  the  rule  in  Succession  of  Kugler,  23- 
La.  Ann.  455. 

Upon  the  facts  in  the  case  at  bar,  however,  the  court  is  not  called 
upon  to  consider  the  rule  as  applied  to  a  case  where  a  portion  of  the 
premiums  which  constitute  the  consideration  for  the  insurance  still 
remains  unpaid,  and  where  the  policy  is  liable  to  forfeiture  in  case 
of  non-payment.  Here  the  entire  amount  of  the  premiums  stipulated 
for  in  the  policy  had  been  paid  before  the  death  of  the  wife,  Eliza- 
beth A.  Stanchfield,  and  the  subsequent  attempted  surrender  of  the 
policy  by  her  husband,  whose  life  was  insured.  The  case,  therefore, 
stands  in  the  same  position  it  would  if  the  whole  consideration  for 
the  policy  had  been  paid  by  the  party  procuring  it  at  the  time  of  its 
execution  and  delivery  by  the  company,  and  the  question  is,  having 
made  such  payment  and  taken  out  a  policy  for  the  benefit  of  his  said 
wife  and  his  children,  payable  in  express  terms  to  her,  or.  in  the  event 
of  her  prior  decease,  to  his  children,  it  was  competent  for  him  to  sur- 
render the  same  and  take  another  policy  in  consideration  of  such  sur- 
render, and  in  lieu  of  the  original,  for  the  benefit  of  another  party. 
This  question,  it  seems  to  the  court,  must  be  answered  in  the  negative. 

The  transaction  on  the  part  of  Mr.  Stanchfield  was  in  the  nature  of 
an  irrevocable  and  executed  voluntary  settlement  upon  his  wife  and 
children  of  the  sum  secured  to  be  paid  by  the  policy  at  his  death,  con- 
ditioned that  the  same  should  be  to  her  for  her  benefit  should  she 
survive  him ;  but  if,  not,  then  the  same  should  be  paid  to  his  children, 
or,  if  minors,  to  their  guardian,  for  their  sole  use  and  benefit.  Nothing 
remained  to  be  done  on  his  part  to  make  the  intended  gift  of  the  policy 
to  the  beneficiaries  therein  named  complete  and  effectual  as  against 
himself  and  all  mere  volunteers  claiming  under  him.  In  paying  for 
the  insurance  and  procuring  the  policy  to  be  issued,  payable,  in  ex- 
press terms,  upon  his  death,  to  his  said  wife,  Elizabeth,  if  then  living, 
and  if  not  to  his  children,  for  their  sole  use  and  benefit,  without  any 
condition  or  stipulation  reserving  a  right  to  change  or  alter  any  of  the 


284  RIGHTS   UNDER  THE    POLICY 

terms  of  the  agreement,  he  did  all  that  could  well  be  done,  under  the 
circumstances,  in  the  execution  of  an  intention  to  vest  in  his  said  ap- 
pointees the  entire  interest  in  the  policy,  and  all  rights  thereunder. 
Adams  v.  Brackett's  Ex'r,  5  Mete.  (Mass.)  280;  Landrum  v.  Knowles, 
22  N.  J.  Eq.  594. 

What  he  did  was  a  "clear  and  distinct  act,"  wholly  divesting  him- 
self of  all  ownership  or  control  over  the  money  paid  for  the  insurance, 
disclaiming  any  interest  in  the  policy,  or  intention  to  take  or  hold  it 
for  himself  or  his  legal  representatives,  at  the  same  time  putting  it 
beyond  his  power  so  to  do  by  the  stipulation  obligating  the  company 
to  pay  the  sum  insured,  whenever  it  should  become  due,  to  such  of  the 
persons  named  in  the  policy  as  might  then  be  entitled  thereto  by  its 
terms.  Taking  the  delivery  of  the  policy  from  the  company,  under 
these  circumstances,  can  only  be  construed  as  an  act  of  acceptance  for 
the  designated  beneficiaries,  and  his  subsequent  holding  of  the  same  as 
that  of  a  naked  depositary,  without  any  interest,  for  those  entitled 
thereto.  Such  conduct  on  the  part  of  the  husband  and  father  was  both 
natural  and  proper,  and  it  raises  no  presumption  against  the  theory  of 
a  completed  transaction  on  his  part,  as  evidenced  by  his  other  acts.  As 
the  insured  had  no  legal  or  equitable  interest  in  the  policy  at  the  time 
of  its  surrender  and  cancellation,  the  act  was  a  nullity,  and  could  not 
affect  the  rights  of  his  children,  to  whom  it  then  belonged,  and  who 
alone  could  release  the  company  from  the  obligations  it  contained. 

We  concur  in  the  opinion  of  the  district  court,  that  "his  children"' 
included  the  issue  of  both  marriages.    Order  affirmed. 


2.  Efi^ect  oif  Murder  oe  Insured  by  Beneficiary 


ANDERSON  v.  LIFE  INS.  CO.  OF  VIRGINIA. 

(Supreme  Court  of  North  Carolina.  1910.  152  X.  C.  1,  67  S.  E.  53.) 
Action  by  L.  W.  Anderson,  administrator  of  Penelope  Barnes,  de- 
ceased, against  the  Life  Insurance  Company  of  Virginia  and  N.  R. 
Parker,  administrator  of  Seth  Newby,  deceased.  On  appeal  from  a. 
justice,  facts  were  agreed  on,  and  plaintiff  had  judgm.ent.  Defendant 
Parker  appeals. 

The  facts  formally  agreed  upon  were  as  follows :  "That  on  Febru- 
ary 1,  1909,  Penelope  Newby,  now  Barnes,  obtained  from  the  Life 
Insurance  Company  of  Virginia  a  policy  of  insurance  on  her  life  for  the 
benefit  of  Seth  Newby,  her  brother;  that  both  Penelope  Barnes  and 
Seth  Newby  died  on  July  3,  1909 ;  that  Seth  Newby  died  by  his  own 
hand  before  Penelope  Barnes  died ;  that  Penelope  Barnes  was  mur- 
dered by  Seth  Newby ;   that  the  Life  Insurance  Company  of  Virginia. 


VESTED   RIGHTS    OF   THE    BENEFICIART  2S5 

has  paid  to  N.  R.  Parker,  administrator  of  Seth  Newby,  deceased,  the 
sum  of  $110,  the  amount  due  under  the  said  policy  of  insurance,  with 
understanding  by  all  parties  that  Parker  shall  hold  money  to  abide 
determination  of  this  action,  and  that  the  policy  of  insurance  hereto 
attached  is  an  exact  copy  of  the  original  policy  of  insurance,  and  the 
same  is  hereby  made  a  part  of  this  statement  of  facts." 

Hoke,  J.  It  is  a  principle  very  generally  accepted  that  a  beneficiary 
who  has  caused  or  procured  the  death  of  the  insured  under  circum- 
stances amounting  to  a  felony  will  be  allowed  no  recovery  on  the  policy. 
\^ance  on  Insurance,  pp.  392,  393;  Cooky's  Insurance  Briefs,  3153; 
25  Cyc.  153;  3  A.  &  E.  (2d  Ed.)  p.  1021. 

This  wholesome  doctrine,  referred  by  most  of  the  cases  to  the  maxim 
"Nullus  commodum  capere  potest  de  injuria  sua  propria,"  has  been 
uniformly  upheld,  so  far  as  we  are  aware,  except  in  certain  cases  where 
the  interest  involved  was  conferred  by  statute,  and  the  statute  itself 
does  not  recognize  any  exception.  Such  an  instance  has  occurred  in 
our  own  court,  in  the  case  of  Owens  v.  Ow^ens,  100  N.  C.  240,  6  S.  E. 
794,  where  a  widow,  convicted  as  accessory  before  the  fact  to  her  hus- 
band's murder,  was  awarded  dower  under  the  statute — a  decision  which 
caused  an  immediate  amendment  of  the  statute  (Pub.  Laws  1889,  c. 
499),  and  this  amendment  has  since  prevailed  as  the  law  of  the  state 
on  that  subject.  The  authorities  are  also  to  the  effect  that  in  cases 
like  the  present,  where  the  contract  is  made  between  the  insured  and 
the  company  for  another's  benefit — that  is,  a  valid  contract  of  that 
character — a  felony  of  the  kind  indicated  on  the  part  of  the  beneficiary 
will  not  relieve  the  company  of  all  liability  on  the  policy,  but  recovery 
can  be  had  usually  by  the  representative  of  the  insured,  and  for  the 
benefit  of  the  latter's  estate.  Vance  and  Cooley,  supra ;  Schmidt, 
Adm'r,  V.  Ins.  Co.,  112  Iowa,  41,  83  N.  W.  800,  51  L.  R.  A.  141,  84 
Am.  St.  Rep.  323  :  Supreme  Lodge  v.  IMenkhausen,  209  111.  277,  70 
N.  E.  567,  65  L.  R.  A.  508,  101  Am.  St.  Rep.  239 ;  Ins.  Co.  v.  Davis, 
Adm'r,  96  Va.  7Z7 ,  32  S.  E.  475,  44  L.  R.  A.  305 ;  Shea  v.  Mass. 
Benefit  Asso.,  160  ^lass.  289,  35  N.  E.  855,  39  Am.  St.  Rep.  475  ;  Tyler 
V.  Odd  Fellows  Relief,  etc.,  145  Mass.  134,  13  N.  E.  360;  Cleaver 
et  al.  v.  Mutual  Res.  Fund,  L.  R.  Q.  B.  ( 1892)  p.  147. 

This  latter  ruling  would  very  likely  not  obtain  in  an  ordinary  life  pol- 
icy, where  a  valid  contract  of  insurance  had  been  made,  and  purported 
to  be  between  the  company  and  the  beneficiary,  and  such  beneficiary 
was,  and  continued  to  be  throughout,  the  owner  of  the  policy  and  of 
all  interest  in  it.  Such  a  position,  however,  is  not  presented  here  in 
any  aspect  of  it,  as  the  company  recognizes  its  liability  on  the  policy, 
and  the  question  is  on  the  right  to  the  fund  as  between  the  represent- 
ative of  the  insured  and  of  the  beneficiary. 

On  that  question,  and  under  the  authorities  cited,  there  is  no  error 
in  the  ruling  of  the  court  below,  awarding  the  fund  to  the  representa- 
tive of  the  insured,  and  the  judgment  to  that  effect  is  affirmed.  Judg- 
ment affirmed. 


286  RIGHTS    UNDER  THE    POLICY 

II.  Beneficiaries  in  Mutual  Benefit  Associations  ^ 

1.  In  Gene;rai, 


HOEFT  V.  SUPREME  LODGE  KNIGHTS  OF  HONOR. 

(Supreme  Court  of  California,  1896.    113  Cal.  91.  45  Pac.  185,  33  L.  R.  A.  174.) 

Action  by  Catherine  Hoeft  against  the  Supreme  Lodge  Knights  of 
Honor  and  others  on  a  benefit  certificate.  From  a  judgment  for  plain- 
tiff, defendants  appeal. 

Henshaw,  J.^  Appeal  from  the  judgment  given  in  favor  of  plain- 
tiff upon  the  pleadings.  Plaintiff,  the  widow  of  Henry  Hoeft,  sued 
defendant,  a  benefit  association,  to  recover  $2,000  upon  a  certificate 
issued  in  her  name,  at  request  of  the  insured  member,  Henry  Hoeft. 
The  defendant  Supreme  Lodge,  for  answer,  paid  the  money  into  court, 
and  asked  that  the  children  of  Henry  Hoeft  be  allowed  to  appear  and 
contest.  This  was  permitted,  and  the  children — defendants  and  appel- 
lants herein — interposed  a  general  demurrer  to  plaintiff's  complaint, 
and  thereafter  filed  an  answer  and  cross  complaint.  The  court,  upon 
motion,  gave  plaintiff  judgment  upon  the  pleadings,  and  this  appeal 
followed.     *     *     * 

The  principal  question  presented  is  raised  by  the  new  matter  plead- 
ed by  defendants  in  their  cross  complaint.  They  set  forth  that  plain- 
tiff is  their  stepmother.  Originally  their  father — the  insured — procured 
a  certificate  to  be  issued  in  the  name  of  their  mother,  his  then  wife. 
Upon  her  death  a  certificate  was  issued  in  their  favor.  In  the  course 
of  time  he  married  plaintiff,  and  thereafter  surrendered  the  certificate 
in  favor  of  them,  and  caused  the  certificate  under  which  plaintiff  claims 
to  be  issued  to  her.  The  last  change,  it  is  averred,  was  accomplished 
through  the  fraudulent  representations,  undue  influence,  coercion  and 
duress  practiced  and  exercised  upon  their  father  by  his  wife,  this  plain- 
tiff. The  specific  averments  to  support  this  charge  are  to  the  last  de- 
gree meager  and  inconclusive ;  but,  passing  that,  under  an  assumption 
of  their  sufficiency,  we  come  to  consider  whether  a  cause  of  action  is 
stated.  If  so,  the  judgment  must  be  reversed;  if  not,  it  was  properly 
given. 

Defendants  do  not  plead  any  contract  with  their  deceased  father, 
or  any  special  equities  which  would  deprive  him  of  the  right  to  make 
a  change,  but  stand  upon  the  ground  that  they  may  contest  because 
the  change  was  procured  by  fraud.     But,  if  it  was  a  fraud,  did  they 

2  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  137.  138.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3756  et  seq. 

3  Part  of  the  opinion  is  omitted. 


BENEFICIARIES   IN    MUTUAL   BENEFIT   ASSOCIATIONS  287 

have  a  right  to  complain?  Clearly  they  had  not,  unless  either  by  con- 
tract or  in  law  they  had  some  vested  interest  or  right  in  the  certificate 
which  had  formerly  been  taken  out  in  their  favor.  They  claim  no 
such  vested  interest  by  contract.  If  it  exists  at  all,  then,  it  exists  by 
operation  of  law.  But  such  rights  are  either  constitutional  or  statutory, 
and  we  are  referred  to  no  law  which  secures  to  them  a  right  of  action 
for  such  a  cause. 

If  they  had  a  vested  right  in  the  certificate  as  such,  then  the  in- 
sured himself,  of  his  own  volition,  and  without  the  fraudulent  con- 
trivance of  a  third  person,  could  not  substitute  a  new  beneficiary.  But 
this  is  not  and  cannot  be  claimed,  for  the  contract  is  between  the  order 
and  the  insured.  The  beneficiary's  interest  is  the  mere  expectancy  of 
an  incompleted  gift,  which  is  revocable  at  the  will  of  the  insured,  and 
which  does  not  and  cannot  become  vested  as  a  right  until  fixed  by  his 
death.  If  it  is  said  that  a  devisee  under  a  will  has,  during  the  life  of 
the  testator,  a  like  naked  expectancy,  it  may  be  freely  conceded  that 
it  is  so;  but  to  the  heirs  and  devisees  is  confirmed  a  right  of  action  for 
fraud,  etc.,  by  the  provisions  of  the  Code.  Otherwise  they,  too,  would 
come  within  the  scope  of  the  general  principle  that  a  right  of  action 
for  fraud  is  personal  and  untransferable.  One  cannot  be  defrauded 
of  that  in  which  he  has  no  vested  right.  A  vested  right  is  property, 
which  the  law  protects,  while  a  mere  expectancy  is  not  property,  and 
therefore  is  not  protected. 

These  views  will  be  found  supported  without  conflict  by  a  multitude 
of  authorities  from  which  may  be  cited:  Nibl.  Mut.  Ben.  Soc.  (2d 
Ed.)  §  234a ;  Brown  v.  Grand  Lodge,  80  Iowa,  287,  45  N.  W.  884, 
20  Am.  St.  Rep.  420 ;  Schillinger  v.  Boes,  85  Ky.  357,  3  S.  W.  427 ; 
Robinson  v.  Association  (C.  C.)  68  Fed.  825 ;  Supreme  Conclave  v. 
Cappella  (C.  C.)  41  Fed.  1;  Lamont  v.  Grand  Lodge  (C.  C.)  31 
Fed.  177;  Knights  of  Honor  v.  Watson,  64  N.  H.  517,  15  Atl.  125; 
Beatty's  Appeal,  122  Pa.  428,  15  Atl.  861;  Martin  v.  Stubbings,  126 
111.  387,  18  N.  E.  657,  9  Am.  St.  Rep.  620.  In  our  own  state  the 
cases  of  Swift  v.  Exchange  Board,  67  Cal.  567,  8  Pac.  94;  Order 
of  Mutual  Companions  v.  Griest,  76  Cal.  494,  18  Pac.  652;  Bowman 
V.  Moore,  87  Cal.  306,  25  Pac.  409 ;  and  McLaughlin  v.  McLaughlin, 
104  Cal.  171,  37  Pac.  865,  43  Am.  St.  Rep.  83, — recognize  the  same 
general  principles. 

Jory  V.  Supreme  Council,  105  Cal.  20,  38  Pac.  524,  26  L.  R.  A. 
7Z2),  45  Am.  St.  Rep.  17,  and  the  cases  involving  a  like  consideration, 
differ  radically  from  the  case  at  bar.  There  is  no  conllict  in  the 
decisions  nor  confusion  in  the  principles.  In  the  Jory  Case  the  in- 
sured endeavored  to  change  the  beneficiary,  and  did  everything  pos- 
sible to  that  end  except  to  surrender  the  outstanding  certificate.  This 
he  was  prevented  from  doing  by  the  fraud  and  contrivance  of  the 
beneficiary  named  therein,  who  refused  to  part  with  it.  As  between 
the  two  claimants  to  the  fund,  namely,  the  holder  of  the  earlier  certif- 
icate which  the  insured  had  in  effect  canceled,  and  the  beneficiary  last 


288  RIGHTS   UNDER  THE    POLICY 

named,  equity,  not  demanding  impossibilities,  and  not  permitting  one 
to  take  advantage  of  his  own  wrong,  decreed  that  the  latter  had  the 
better  right.  In  other  words,  it  gave  complete  effect  to  the  acts  of 
the  insured. 

In  this  case  appellants  ask  to  have  the  acts  of  the  insured  nulli- 
fied,— an  essentially  different  demand.  The  judgment  appealed  from 
is  affirmed.* 


2.  Change  of  Beneficiary  ' 


SANBORN  V.  BLACK. 

(Supreme  Court  of  New  Hampshire,  1S94.     67  N.  H.  537,  35  Atl.  942.) 

Bill  of  interpleader  by  Edward  B.  S.  Sanborn  against  Louisa  F. 
Black,  Sarah  M.  Bruce,  and  others. 

The  Odd  Fellows'  Mutual  Relief  Association  of  the  Connecticut 
River  Valley  has  paid  to  the  plaintiff,  for  the  benefit  of  the  party 
entitled  to  it,  $975,  upon  a  certificate  of  membership  issued  to  the 
plaintiff's  intestate,  Frederick  A.  Black,  February  8,  1877,  by  which 
the  association  promised  to  pay  $1,000,  upon  Black's  decease,  to  the 
person  or  persons  designated  by  him  in  his  application  for  member- 
ship, or  in  his  last  legal  assignment,  provided  such  person  or  per- 
sons should  be  heirs  or  relatives  of  him,  or  dependents  upon  him. 
The  by-laws  of  the  association  contained  the  following  provisions : 
^'If  either  of  the  persons  so  designated  have  died  prior  to  the  death 
of  the  member,  the  sum  which  would  have  been  paid  to  said  de- 
tedent's  beneficiary,  had  he  or  she  been  living  at  the  time  of  the 
member's  death,  shall  be  payable  to  other  beneficiaries,  if  there  are 
any  named,  in  equal  proportions,  but,  if  there  are  no  other  bene- 
ficiaries named,  to  the  next  of  kin  of  the  deceased  member.  A 
member  shall  not  change  his  beneficiary  *  *  *  without  the  con- 
sent of  the  directors,  and  a  record  being  made  of  the  same  on  the 
tooks  of  the  association." 

In  his  application,  Black  designated  his  wife,  Julia,  as  beneficiary. 
She  died  in  1885,  and  he  subsequently  married  the  defendant  Louisa, 
September  27,  1889,  he  indorsed  upon  the  certificate  and  signed  the 
following,  "It  is  my  will  that  the  benefit  named  in  this  instrument 
be  paid  to  my  wife,  Louisa  F.  Black,"  and  sent  it  to  the  association. 
at  Springfield,  Mass.,  to  get  the  consent  of  the  directors  to  the  change, 

*  See,  also,  Martin  v.  Stubbings,  126  111.  387,  18  N.  E.  657,  9  Am.  St.  Rep. 
620  (1888). 

5  For  discussion  of  principles,  see  Vance  on  Insurance,  §  138.  See,  also. 
■Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3767  et  seq. 


BENEFICIARIES    IN    MUTUAL    BENEFIT    ASSOCIATIONS  28'J 

and  have  it  recorded.  He  died  October  3,  1889.  The  directors,  not 
holding  any  meeting  in  the  meantime,  did  not  consent  to  the  change 
before  his  death.  Three  of  them  consented  in  writing  September  20, 
1890.  Louisa  and  the  next  of  kin  appear,  each  claiming  the  money 
in  the  plaintiff's  possession. 

Chase,  J.  It  is  claimed  that  Black's  designation  of  his  second  wife 
as  beneficiary  is  not  effectual,  because  it  was  not  consented  to  and 
recorded,  as  required  by  a  by-law  of  the  association,  before  his 
death.  The  association's  promise  to  pay  the  sum  named  in  the  cer- 
tificate of  membership  to  some  one— either  the  designated  beneficiary 
or  the  member's  next  of  kin — is  absolute.  It  also  gives  the  member 
authority  to  choose,  and  from  time  to  time  to  change,  his  beneficiary, 
provided  the  person  appointed  is  a  relative  of,  or  a  dependant  upon, 
him.  This  feature  distinguishes  the  contract  from  ordinary  contracts 
of  life  insurance.  Marsh  v.  Legion  of  Honor,  149  Mass.  512,  515, 
21  N.  E.  1070,  1071,  4  L.  R.  A.  382.  It  deprives  any  one  from  ac- 
quiring a  vested  interest  in  the  insurance  during  the  lifetime  of  the 
member.  Barton  v.  Association,  63  N.  H.  535,  3  Atl.  627;  Knights 
of  Honor  v.  Watson,  64  N.  H.  517,  519,  15  Atl.  125,  126.  Com- 
pare Bank  V.  Whittle,  63  N.  H.  587,  3  Atl.  645. 

Authority  in  the  association  or  its  directors  to  defeat  the  member's 
choice  by  arbitrarily  withholding  consent  would  be  inconsistent,  not 
only  with  the  right  expressly  granted  to  him,  but  also  with  the  general 
nature  and  purpose  of  the  contract.  It  would  "go  to  the  destruction 
of  the  thing  granted,  and.  *  *  *  according  to  the  well-known 
rule,  the  thing  granted  would  pass  discharged  of  the  condition."  Dall- 
man  v.  King,  4  Bing.  N.  C.  105,  109;  Moore  v.  Woolsey,  4  El.  & 
Bl.  243,  256;  Braunstein  v.  Insurance  Co.,  1  Best  &  S.  782,  795; 
Boynton  v.  Insurance  Co.,  43  Vt.  256,  262,  5  Am.  Rep.  276;  Thomas  v. 
Fleury,  26  N.  Y.  26,  34;  Bowery  National  Bank  v.  Mayor,  etc.,  of 
City  of  New  York,  63  N.  Y.  336,  339,  340;  Nolan  v.  Whitney,  88 
N.  Y.  648.  It  is  not  claimed  that  any  reason  existed  in  this  case  for 
withholding  consent.  The  person  designated  as  beneficiary  is  one  of 
a  class  entitled  to  become  such,  and,  so  far  as  appears,  is  unexcep- 
tionable in  all  respects. 

One  purpose  of  the  by-law  was  to  secure  to  the  association  reliable 
evidence  of  every  change  in  beneficiaries,  so  that  it  would  know  to 
whom  it  was  liable  upon  the  death  of  a  member,  and  be  protected, 
to  some  extent,  at  least,  from  litigation  by  adverse  claimants.  Anthony 
V.  Association,  158  ^lass.  322,  324,  33  N.  E.  577,  578;  American 
Legion  v.  Smith,  45  N.  J.  Eq.  466,  17  Atl.  770;  Supreme  Conclave  v. 
Cappella  (C.  C.)  41  Fed.  1,  4.  Here  this  purpose  was  fully  accom- 
plished. Black's  designation  was  sufficient  in  form  and  substance. 
It  was  forwarded  to  and  received  by  the  association  several  days 
before  his  death.  He  did  all  that  he  was  required  to  do — all  that 
he  could  do — to  complete  the  transfer  of  the  association's  obligation 
CooLEY  Ins. — 19 


290  RIGHTS    UNDER   THE    POLICY 

to  Louisa.  There  being  no  sufficient  reason  to  justify  other  action 
on  the  part  of  the  directors,  he  had  the  right  to  have  the  transfer 
consented  to  by  them,  and  recorded. 

The  only  reason  suggested  why  consent  was  not  given,  and  record 
was  not  made,  is  because  the  directors  did  not  meet  before  his  death, 
after  receiving  the  assignment.  If  they  had  met,  and  declined  or 
neglected  to  consent,  and  Black  had  lived,  law  or  equity  would  have 
furnished  him  an  adequate  remedy  to  secure  his  right.  Walker  v. 
Walker,  63  N.  H.  321,  56  Am.  Rep.  514.  Upon  his  death,  Louisa's 
expectancy  became  a  vested  right.  She  became  entitled  (as  he  was 
in  his  lifetime)  to  insist  that  the  directors  should  perform  their  duty 
under  the  contract.  Scott  v.  Association,  63  N.  H.  556,  4  Atl.  792; 
Connelly  v.  Association,  58  Conn.  552,  20  Atl.  671,  9  L.  R.  A.  428, 
18  Am.  St.  Rep.  296;  Vivar  v.  Knights  of  Pythias,  52  N.  J.  Law, 
455,  20  Atl.  36.  Under  the  circumstances,  equity  treats  that  as  done 
which  ought  to  have  been  done.  Supreme  Conclave  v.  Cappella  (C.  C) 
41  Fed.  1;  Isgrigg  v.  Schooley,  125  Ind.  94,  25  N.  E.  151.  Case 
discharged. 

McGOWAN  v.   SUPREME  COURT  L  O.  O.  F. 
(Supreme  Court  of  Wisconsin,  1899.     104  Wis.  173.  80  N.  W.  603.) 

Action  by  Addie  McGowan  against  the  Supreme  Court  of  the 
Independent  Order  of  Foresters  upon  a  benefit  certificate  issued  by 
the  defendant  to  one  Edward  C.  Pion,  on  the  3d  day  of  June,  1896; 
the  defendant  being  a  fraternal  association  issuing  life  insurance  cer- 
tificates to  its  members  upon  the  assessment  plan.  The  certificate, 
when  issued,  was  made  payable  to  one  Frances  Heid,  the  affianced  wife 
of  said  Pion.  The  complaint  alleges  that  on  January  31,  1898,  Pion 
duly  changed  the  beneficiary,  in  accordance  with  the  rules  and  regu- 
lations of  the  order,  and  thereby  made  his  insurance  payable  to  the 
plaintiff,  his  sister,  and  that  Pion  died  February  9,  1898.  The  amended 
answer  admits  the  issuance  of  the  certificate  of  insurance,  and  the 
death  of  the  insured,  and  the  furnishing  of  sufficient  proofs  of  death, 
but  denies  that  the  beneficiary  was  ever  changed,  and,  further,  sets 
up  the  defense  of  false  statements  made  by  the  insured  in  his  ap- 
plication for  insurance,  by  which  the  policy  was  avoided. 

The  rules  of  the  order  prescribing  the  manner  in  which  the  in- 
sured may  make  a  change  of  beneficiary  were  put  in  evidence,  and 
they  provide,  in  substance,  that  such  change  may  be  made  in  the 
following  manner:  (1)  By  filing  a  written  application  with  the  local 
court  for  such  change ;  (2)  paying  a  fee  of  50  cents  ;  (3)  surrendering 
the  old  certificate;  (4)  furnishing  satisfactory  evidence  that  he,  and 
not  the  beneficiary,  has  paid  the  assessments ;  (5)  whereupon  the  local 
court  shall  cause  the  application,  duly  certified  by  the  court  officers 
and  sealed,  to  be  transmitted,  with  the  certificate,  to  the  head  office ; 


BENEFICIARIES   IN    MUTUAL   BENEFIT   ASSOCIATIONS  291 

(6)  on  the  receipt  of  which,  if  approved  by  the  supreme  chief  ranger, 
the  supreme  secretary  shall  incorporate  in  the  certificate  the  desired 
change.  The  rules  further  provide  that,  upon  the  issuance  of  the 
second  certificate,  the  first  should  thereby  become  null  and  void,  and 
that  no  certificate  should  be  assigned,  nor  the  beneficiary  changed, 
except  in  the  manner  so  provided. 

It  appears  by  the  evidence  that  the  insured  removed  from  Galena, 
III,  to  La  Crosse,  Wis.,  some  time  after  the  issuance  of  the  original 
certificate,  and  lived  with  the  plaintifif,  his  sister.  From  October, 
1897,  until  his  death,  February  9,  1898,  he  seems  to  have  lived  in 
La  Crosse  with  the  plaintiff,  his  sister.  The  head  of  the  defendant 
order  is  called  the  "Supreme  Chief  Ranger,"  and  he  has  his  office  at 
Toronto,  Canada.  In  January,  1898,  one  Robert  Kidney,  a  deputy  of 
the  supreme  chief  ranger,  whose  business,  under  the  rules  of  the 
order,  is  to  incorporate  subordinate  courts,  look  after  those  already 
in  existence,  and  generally  to  represent  the  supreme  chief  ranger  in 
that  respect,  came  to  La  Crosse,  and  saw  the  insured,  on  the  31st  of 
January,  at  the  home  of  his  sister.  The  insured  on  that  day  told  him 
that  he  wished  to  change  the  beneficiary  in  his  certificate,  and  make 
the  policy  over  to  his  sister,  the  plaintiff.  ]\Ir.  Kidney  produced  the 
proper  blank,  and  it  was  filled  out,  the  50  cent  fee  was  paid,  and 
the  application  was  at  once  transmitted  to  the  local  court  at  Galena 
for  the  signature  of  the  court  officers  and  the  seal.  The  certificate 
was  not  surrendered,  because  it  was  then  in  the  possession  of  Frances 
Heid,  at  Galena.  The  application  reached  Galena,  and  the  proper  cer- 
tificate was  placed  thereon  by  the  officers  of  the  court,  and  the  sum 
was  transmitted  to  the  supreme  chief  ranger,  and  reached  him  Feb- 
ruary 7,  1898.  The  original  certificate  reached  Mr.  Pion  on  the  7th 
or  8th  of  February,  but  in  wdiat  manner  it  was  obtained  from  Miss 
Heid  does  not  appear.  He  immediately  delivered  it  to  Kidney,  who, 
on  the  morning  of  the  9th  of  February,  being  the  day  of  Pion's 
death,  mailed  it  to  the  proper  officers  at  Toronto,  where  it  was  re- 
ceived February  11th;  Pion  having  died,  as  before  stated,  February 
9th.  No  new  certificate  was  ever  issued,  nor  does  it  appear  that  the 
original  certificate  was  ever  returned. 

Judgment  for  the  plaintiff  for  $2,099  damages  and  costs  was  ren- 
dered, from  which  judgment  the  defendant  appeals. 

WiNSLOW,  JO  *  *  *  It  is  now  well  settled  that  one  who  is  in- 
sured in  a  mutual  benefit  association,  and  who  wishes  to  change  the 
beneficiary,  must  make  the  change  in  the  manner  required  by  his 
policy  and  the  rules  of  the  association,  and  that  any  material  deviation 
from  this  course  will  render  the  attempted  change  ineffective.  It  is 
equally  well  settled  that  there  are  cases  where  literal  and  exact  con- 
formity with  the  requirements  of  the  policy  may  be  excused.  In  the 
case  of  Supreme  Conclave  v.  Cappella  (C.  C.)  41  Fed.  1,  the  subject 

6  The  statement  of  facts  is  rewritten  and  part  of  the  opinion  is  omitted. 


292  RIGHTS    UNDER  THE    POLICY 

is  exhaustively  reviewed,  and  the  conclusion  reached  that  there  were 
three  exceptions  to  the  rule  of  exact  compliance:  First,  where  the 
society  has  waived  strict  compliance  by  issuing-  a  new  certificate  with- 
out insisting  on  the  performance  of  all  the  intermediate  steps ;  second, 
where,  by  loss  of  the  first  certificate  without  fault,  its  surrender  be- 
comes impossible,  a  court  of  equity  will  not  require  an  impossibility, 
but  will  treat  the  change  as  made  if  the  insured  has  taken  all  the 
other  necessary  steps,  and  does  all  in  his  power  to  make  the  change ; 
third,  where  the  insured  has  pursued  the  course  required  by  the  policy 
and  the  rules  of  the  association,  and  does  all  in  his  power  to  make 
the  change,  but  before  the  new  certificate  is  actually  issued  he  dies, 
a  court  of  equity  will  decree  that  to  be  done  which  ought  to  be  done, 
and  will  act  as  though  a  new  certificate  had  been  issued.  Association 
V.  Kirgin,  28  Mo.  App.  80;  Isgrigg  v.  Schooley,  125  Ind.  94,  25  N. 
E.  151;  Grand  Lodge  v.  Noll,  90  Alich.  7^7,  51  N.  W.  268,  15  L. 
R.  A.  350,  note  30  Am.  St.  Rep.  419;  Marsh  v.  Supreme  Council, 
149  Mass.  512,  21  N.  E.  1070,  4  L.  R.  A.  382;  Luhrs  v.  Luhrs, 
123  N.  Y.  367,  25  N.  E.  388,  9  L.  R.  A.  534,  20  Am.  St.  Rep.  754; 
Bac.  Ben.  Soc.  (New  Ed.)  §§  310,  310a. 

The  case  at  bar  clearly  comes  within  the  last  of  the  above  classes. 
The  insured  had  done  every  substantial  act  required  of  him  by  the 
terms  of  the  policy  and  the  rules  of  the  society  in  order  to  make  a 
complete  change  of  beneficiaries.  The  last  act  was  the  surrender  to 
the  deputy  chief  ranger  of  the  original  certificate,  at  least  one  day  be- 
fore his  death.  He  could  do  nothing  further.  On  the  part  of  the 
society,  there  were  simply  formal  acts  to  be  performed.  There  was 
no  discretion  as  to  whether  the  society  would  allow  the  change.  It 
is  true  that  the  rules  say  that  the  change  shall  be  made  and  a  ne\'> 
certificate  issued  if  the  application  be  approved  by  the  supreme  chief 
ranger,  but  this  approval  plainly  relates  to  matters  of  form  only.  It 
was  the  right  of  tlie  insured  to  make  the  change  before  his  death  it 
he  took  the  required  steps,  and  if  the  new  beneficiary  was  competent 
to  be  such  under  the  rules  of  the  order.  We  hold,  therefore,  that, 
under  the  rules  laid  down  in  Supreme  Conclave  v.  Cappella,  supra, 
the  insured  in  the  present  case  had  made  an  effective  and  complete 
change  of  beneficiaries. 

But  it  is  urged  that  the  cases  in  which  this  doctrine  has  been  ap- 
plied are  all  cases  where  the  money  has  been  brought  into  court, 
and  the  other  claimant  has  been  interpleaded,  and  thus  the  action  has 
become  an  equitable  one,  in  which  equitable  principles  may  be  and 
are  applied,  while  the  present  action  is  an  action  at  law,  where  strictly 
legal  principles  must  prevail.  The  objection  does  not  seem  forcible. 
Either  there  was  a  change  of  beneficiaries  or  there  was  not.  There 
is  no  middle  course.  Nor  do  we  see  how  there  could  well  be  a  change 
in  equity  and  no  change  at  law,  or  a  change  which  should  operate  as 
to  some  parties  and  not  to  other  parties  to  the  transaction.     There- 


POLICY    PAYABLE    TO    A    THIRD    PERSON  293 

fore  we  hold  that  the  facts  here  shown  prove  a  change  of  bene- 
ficiaries, even  though  the  action  be  one  at  law  J  *  *  *  [Judgment 
reversed  on  other  points.] 


III.  Policy  Payable  to  a  Third  Person 


CENTRAL  NAT.   BANK  v.  HUME. 

(Supreme  Court  of  United  States.  1888.     128  U.  S.  195,  9  Sup.  Ct.  41,  32  L. 

Ed.  370.) 

On  the  23d  of  April,  1872,  the  Life  Insurance  Company  of  Wr- 
ginia  issued  a  policy  of  insurance  on  the  life  of  Thomas  L.  Hume,  of 
Washington,  D.  C,  for  the  term  of  his  natural  life,  in  the  sum  of 
$10,000,  for  the  sole  use  and  benefit  of  his  wife,  Annie  Graham  Hume, 
and  his  children,  payment  to  be  made  to  them,  their  heirs,  executors, 
or  assigns. 

The  charter  of  the  company  provided  as  follows:  "Any  policy 
of  insurance  issued  by  the  Life  Insurance  Company  of  Virginia  on 
the  life  of  any  person,  expressed  to  be  for  the  benefit  of  any  married 
woman,  whether  the  same  be  effected  originally  by  herself  or  her  hus- 
band, or  by  any  other  person,  or  whether  the  premiums  thereafter  be 
paid  by  herself  or  her  husband  or  any  other  person  as  aforesaid,  shall 
inure  for  her  sole  and  separate  use  and  benefit,  and  that  of  her  or 
husband's  children,  if  any,  as  may  be  expressed  in  said  policy,  and 
shall  be  held  by  her  free  from  the  control  or  claim  of  her  husband 
or  his  creditors,  or  of  the  person  effecting  the  same  and  his  creditors." 
Section  7. 

The  application  for  this  policy  was  made  on  behalf  of  the  wife  and 
children  by  Thomas  L.  Hume,  who  signed  the  same  for  them.  On 
the  28th  of  March,  1880,  the  Hartford  Life  &  Annuity  Company  of 
Hartford,  Conn.,  issued  five  certificates  of  insurance  upon  the  life  of 
Thomas  L.  Hume,  of  $1,000  each,  payable  to  his  wife,  Annie  G.  Hume, 
if  living,  but  otherwise  to  his  legal  representatives.  On  the  17th  of 
February,  1881,  the  Maryland  Life  Insurance  Company  of  Baltimore 
issued  a  policy  of  insurance  upon  the  life  of  Thomas  L.  Hume,  in 
the  sum  of  $10,000,  for  the  term  of  his  natural  life,  payable  to  "the 
said  insured,  Annie  G.  Hume,  for  her  sole  use,  her  executors,  admin- 

7  To  the  same  effect,  see  Waldnm  v.  Honistad,  119  Wis.  312,  9G  N.  W.  806 
(1903).  See,  also.  John  Hancock  Mutual  Life  Ins.  Co.  v.  White,  20  R.  I. 
457,  40  Atl.  5  (1898).  And  see  Hoeft  v.  Supreme  Lodge  Knights  of  Honor, 
ante,  p.  286. 

s  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  139-141.  See, 
also,  Coolej',  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3787  et  seq. 


294  RIGHTS    UNDER  THE    POLICY 

istrators,  or  assigns ;"  the  said  policy  being  issued,  as  it  recites  on  its 
face,  in  consideration  of  the  sum  of  $337.20  to  them  duly  paid  by 
said  Annie  G.  Hume,  and  of  an  annual  premium  of  the  same  amount 
to  be  paid  each  year  during  the  continuance  of  the  policy.  The  ap- 
plication for  this  policy  was  signed  "Annie  G.  Hume,  by  Thomas  L. 
Hume,"  as  is  a  recognized  usage  in  such  applications,  and  in  accord- 
ance with  instructions  to  that  effect  printed  upon  the  policy. 

The  charter  of  the  Maryland  Life  Insurance  Company  provides 
as  follows:  "Sec.  17.  That  it  shall  be  lawful  for  any  married  woman, 
by  herself,  or  in  her  name  or  in  the  name  of  any  third  person,  with 
his  consent,  as  her  trustee,  to  be  caused  to  be  insured  in  said  compa- 
ny, for  her  sole  use,  the  life  of  her  husband,  for  any  definite  period, 
or  for  the  term  of  his  natural  life ;  and,  in  case  of  her  surviving  her 
husband,  the  sum  or  net  amount  of  the  insurance  becoming  due  and 
payable  by  the  terms  of  the  insurance  shall  be  payable  to  her  to  and 
for  her  own  use,  free  from  the  claims  of  the  representatives  of  her 
husband,  or  of  any  of  his  creditors.  In  case  of  the  death  of  the  wife 
before  the  decease  of  the  husband,  the  amount  of  the  insurance  may 
be  made  payable,  after  the  death  of  the  husband,  to  her  children,  or, 
if  under  age,  to  their  guardian,  for  their  use.  In  the  event  of 
there  being  no  children,  she  may  have  power  to  devise,  and,  if  dying 
intestate,  then  to  go  [to]  the  next  of  kin." 

On  the  13th  of  June,  1881,  the  Connecticut  Mutual  Life  Insurance 
Company  of  Hartford  issued  a  policy  of  insurance  upon  the  life  of 
Thomas  L.  Hume,  in  the  sum  of  $10,000,  for  the  term  of  his  natural 
life,  payable  at  Hartford  to  Annie  G.  Hume  and  her  children  by  him, 
or  their  legal  representatives.  The  application  for  this  policy  was 
signed  "Annie  G.  Hume,  by  Thomas  L.  Hume."  It  was  expressly 
provided,  as  part  of  the  contract,  that  the  policy  was  issued  and  de- 
livered at  Hartford,  in  the  state  of  Connecticut,  and  was  "to  be  in 
all  respects  construed  and  determined  in  accordance  with  the  laws  of 
that  state." 

The  "statute  of  Connecticut,  respecting  policies  of  insurance  is- 
sued for  the  benefit  of  married  women,"  was  printed  upon  the  policy 
under  that  heading,  and  is  as  follows:  "Any  policy  of  life  insurance 
expressed  to  be  for  the  benefit  of  a  married  woman,  or  assigned  to 
her  or  in  trust  for  her,  shall  inure  to  her  separate  use,  or,  in  case  of  her 
decease  before  payment,  to  the  use  of  her  children  or  of  her  hus- 
band's children,  as  may  be  provided  in  such  policy:  provided,  that 
if  the  annual  premium  on  such  policy  shall  exceed  three  hundred  dol- 
lars, the  amount  of  such  excess,  with  interest,  shall  inure  to  the  benefit 
of  the  creditors  of  the  person  paying  the  premiums;  but  if  she  shall 
die  before  the  person  insured,  leaving  no  children  of  herself  or  hus- 
band, the  policy  shall  become  the  property  of  the  person  who  has  paid 
the  premiums,  unless  otherwise  provided  in  such  policy ;"  and  this 
extract  from  the  statute  was  printed  upon  the  policy,  and  attention 
directed  thereto. 


POLICY   PAYABLE   TO   A   THIRD   PERSON  295 

The  American  Life  Insurance  &  Trust  Company  of  Philadelphia 
had  also  issued  a  policy  in  the  sum  of  $5,000  on  the  life  of  Hume,  pay- 
able to  himself  or  his  personal  representatives,  and  this  was  collected 
by  his  administrators. 

Thomas  L.  Hume  died  at  Washington  on  the  23d  of  October,  1881, 
insolvent,  his  widow,  Annie  G.  Hume,  and  six  minor  children,  sur- 
viving him. 

November  2,  1881,  the  Central  National  Bank  of  Washington,  as 
the  holder  of  certain  promissory  notes  of  Thomas  L.  Hume,  amount- 
ing to  several  thousand  dollars,  filed  a  bill  in  the  supreme  court  of  the 
District  of  Columbia  against  Mrs.  Hume  and  the  Maryland  Life  In- 
surance Company,  the  case  being  numbered  7,906,  alleging  that  the 
policy  issued  by  the  latter  was  procured  while  Hume  was  insolvent ;  that 
Hume  paid  the  premium  of  $242.26  without  complainant's  knowledge 
or  consent,  and  for  the  purpose  of  hindering,  delaying,  and  defrauding 
the  complainant  and  his  other  creditors ;  and  praying  for  a  restraining 
order  on  the  insurance  company  from  paying  to,  and  Mrs.  Hume  from 
receiving,  either  for  herself  or  children,  the  amount  due  pending  the 
suit,  and  "that  the  amount  of  the  said  insurance  policy  may  be  de- 
creed to  be  assets  of  said  Thomas  L.  Hume  applicable  to  the  payment 
of  debts  owing  by  him  at  his  death,"  etc.  The  temporary  injunc- 
tion was  granted. 

On  the  12th  of  November  the  insurance  company  filed  its  answer 
to  the  effect  that  Mrs.  Hume  obtained  the  insurance  in  her  own  name. 
and  was  entitled  under  the  policy  to  the  amount  thereof,  and  setting 
up  and  relying  upon  the  •  seventeenth  section  of  its  charter,  quoted 
above.  Mrs.  Hume  answered,  November  16th,  declaring  that  she 
applied  for  and  procured  the  policy  in  question,  and  that  it  was  not 
procured  with  fraudulent  intent;  that  the  estate  of  her  father,  A. 
H.  Pickrell,  who  died  in  1879,  was  the  largest  creditor  of  Hume's  es- 
tate; that  she  is  her  father's  residuary  legatee;  that  the  amount  of 
the  policy  was  intended,  not  only  to  provide  for  her,  but  also  to  se- 
cure her  against  loss. 

Benjamin  U.  Keyser,  receiver,  holding  unpaid  notes  of  Hume,  was 
allowed,  by  order  of  court,  November  16,  1881,  to  intervene  as  co- 
complainant  in  the  cause. 

R.  Ross  Perry  and  Reginald  Fendall  were  appointed,  November 
26,  1881,  Hume's  administrators.  On  January  23,  1882,  the  adminis- 
trators filed  three  bills  (and  obtained  injunctions)  against  Mrs.  Hume 
and  each  of  the  other  insurance  companies,  being  cases  numbered 
8,011,  8,012,  and  8,013,  attacking  each  of  the  policies  (except  the 
American)  as  a  fraudulent  transfer  by  an  insolvent  of  assets  belong- 
ing to  his  creditors. 

The  answers  of  Mrs.  Hume  were  substantially  the  same,  mutatis 
mutandis,  as  above  given,  and  so  were  the  answers  of  the  Connecticut 
Mutual  and  the  Virginia  Life ;  the  former  pleading  the  statute  of 
Connecticut  as  part  of  its  policy,  and  the  latter  the  seventh  section 


296  RIGHTS    UNDER  THE    POLICY 

of  its  charter.  The  Hartford  Life  &  Annuity  Company  did  not  an- 
swer, and  the  bill  to  which  it  was  a  party  defendant  was  taken  pro 
confesso. 

The  administrators  were,  by  order  of  court,  January  2,  1883,  ad- 
mitted parties  defendant  to  said  first  case  numbered  7,906.  and  cases 
numbered  8,011,  8,012,  and  8,013  were  consolidated  with  that  case. 
January  4,  1883,  the  court  entered  a  decretal  order,  dissolving  the  re- 
straining order  in  original  cause  numbered  8,012,  and  directing  the 
Virginia  Insurance  Company  to  pay  the  amount  due  upon  its  policy 
into  court,  and  the  clerk  of  the  court  to  pay  the  same  over  to  Mrs. 
Hume,  for  her  own  benefit  and  as  guardian  of  her  children  (which 
was  done  accordingly;)  and  continuing  the  injunctions  in  original 
causes  8,011,  8,013,  and  7,906,  but  ordering  the  other  insurance  com- 
panies to  pay  the  amounts  due  into  the  registry  of  the  court. 

By  order  of  court,  January  30,  1883,  the  Farmers'  &  Mechanics' 
National  Bank  of  Georgetown,  which  had  proved  up  a  large  claim 
against  Hume's  estate,  was  allowed  to  intervene  in  original  cause  No. 
7^906  as  a  co-complainant ;  and  March  19,  1883,  George  W.  Cochran, 
a  creditor,  was  by  like  order  allowed  to  intervene  as  co-complainant 
in  the  consolidated  cases. 

The  supreme  court  of  the  District  of  Columbia,  after  argument,  on 
the  5th  day  of  January,  1885,  decreed  that  the  administrators  should 
recover  all  sums  paid  by  Thomas  L.  Hume  as  premiums  on  all  policies, 
including  those  on  the  Virginia  policy  from  1874;  and  that,  after 
deducting  said  premiums,  the  residue  of  the  money  paid  into  court 
(being  that  received  from  the  Maryland  and  the  Connecticut  Mu- 
tual) be  paid  to  Mrs.  Hume  individually,  or  as  guardian  for  herself 
and  children;  and  that  the  Hartford  Life  &  Annuity  Company  pay 
over  to  her  the  amount  due  on  the  certificates  issued  by  it.  From  this 
decree  the  said  Central  National  Bank,  Benjamin  U.  Keyser,  the  Farm- 
ers' &  Mechanics'  National  Bank  of  Georgetown,  George  W.  Coch- 
ran, and  the  administrators,  as  well  as  Mrs.  Hume,  appealed  to  this 
court,  and  the  cause  came  on  to  be  heard  here  upon  these  cross-ap- 
peals. 

Mr.  Chief  Justice  Fuller,  after  stating  the  facts  as  above,  delivered 
the  opinion  of  the  court.®     *     *     * 

Mr  Hume  having  been  insolvent  at  the  time  the  insurance  was  ef- 
fected, and  having  paid  the  premiums  himself,  it  is  argued  that  these 
policies  were  within  the  provisions  of  13  Eliz.  c.  5,  and  inure  to  the 
benefit  of  his  creditors  as  equivalent  to  transfers  of  property  with 
intent  to  hinder,  delay,  and  defraud.  The  object  of  the  statute  of 
Elizabeth  was  to  prevent  debtors  from  dealing  with  their  property 
in  any  way  to  the  prejudice  of  their  creditors ;  but  dealing  with  that 
which  creditors,  irrespective  of  such  dealing,  could  not  have  touched. 

9  Tlie  statement  of  facts  is  abridged  from  that  in  tlie  original  report  and 
part  of  tlie  opinion  is  omitted. 


POLICY    PAYABLE    TO    A    THIRD   PERSON  297 

is  within  neither  the  letter  nor  the  spirit  of  the  statute.  In  the  view 
of  the  law,  credit  is  extended  in  reliance  upon  the  evidence  of  the  abil- 
ity of  the  debtor  to  pay,  and  in  confidence  that  his  possessions  will 
not  be  diminished  to  the  prejudice  of  those  who  trust  him.  This  re- 
liance is  disappointed,  and  this  confidence  abused,  if  he  divests  him- 
self of  his  property  by  giving  it  away  after  he  has  obtained  credit. 
And  where  a  person  has  taken  out  policies  of  insurance  upon  his  life 
for  the  benefit  of  his  estate,  it  has  been  frequently  held  that,  as  against 
creditors,  his  assignment,  when  insolvent,  of  such  policies,  to  or  for 
the  benefit  of  wife  and  children,  or  either,  constitutes  a  fraudulent 
transfer  of  assets  within  the  statute ;  and  this,  even  though  the  debtor 
may  have  had  no  deliberate  intention  of  depriving  his  creditors  of  a 
fundJ  to  which  they  were  entitled,  because  his  act  has  in  point  of  fact 
withdrawn  such  a  fund  from  them,  and  dealt  with  it  by  way  of  boun- 
ty.   Freeman  v.  Pope,  L.  R.  9  Eq.  206,  L.  R.  5  Ch.  538. 

The  rule  stands  upon  precisely  the  same  ground  as  any  other  dis- 
position of  his  property  by  the  debtor.  The  defect  of  the  disposition 
is  that  it  removes  the  property  of  the  debtor  out  of  the  reach  of  his 
creditors.  Cornish  v.  Clark,  L.  R.  14  Eq.  189.  But  the  rule  applies 
only  to  that  which  the  debtor  could  have  made  available  for  payment 
of  his  debts.  For  instance,  the  exercise  of  a  general  power  of  appoint- 
ment might  be  fraudulent  and  void  under  the  statute,  but  not  the  ex- 
ercise of  a  limited  or  exclusive  power;  because,  in  the  latter  case, 
the  debtor  never  had  any  interest  in  the  property  himself  which  could 
have  been  available  to  a  creditor,  or  by  which  he  could  have  obtained 
credit.  ^lay.  Fraud.  Conv.  33.  It  is  true  that  creditors  can  obtani 
relief  in  respect  to  a  fraudulent  conveyance  where  the  grantor  can- 
not, but  that  relief  only  restores  the  subjection  of  the  debtor's  property 
to  the  payment  of  his  indebtedness  as  it  existed  prior  to  the  convey- 
ance.    *     *     * 

We  think  it  cannot  be  doubted  that  in  the  instance  of  contracts  of 
insurance  with  a  wife  or  children,  or  both,  upon  their  insurable  in- 
terest in  the  life  of  the  husband  or  father,  the  latter,  while  they  are 
living,  can  exercise  no  power  of  disposition  over  the  same  without 
their  consent,  nor  has  he  any  interest  therein  of  which  he  can  avail 
himself,  nor  upon  his  death  have  his  personal  representatives  or  his 
creditors  any  interest  in  the  proceeds  of  such  contracts,  which  belong 
to  the  beneficiaries,  to  whom  they  are  payable.  It  is  indeed  the  general 
rule  that  a  policy,  and  the  money  to  become  due  under  it,  belong,  the 
moment  it  is  issued,  to  the  person  or  persons  named  in  it  as  the  bene- 
ficiary or  beneficiaries ;  and  that  there  is  no  power  in  the  person  pro- 
curing the  insurance,  by  any  act  of  his,  by  deed  or  by  will,  to  transfer 
to  any  other  person  the  interest  of  the  person  named.  Bliss,  Ins.  (2d 
Ed.^  517;  Glanz  v.  Gloeckler,  10  111.  App.  486,  per  McAllister,  J.; 
Id.,  104  111.  573,  44  Am.  Rep.  94;  Wilburn  v.  Wilburn.  83  Ind.  55; 
Ricker  V.  Insurance  Co.,  27  ^linn.  193,  6  N.  W.  771,  38  Am.  Rep.  289; 
Insurance  Co.  v.  Brant,  47  :^Io.  419,  4  Am.  Rep.  328 ;   Gould  v.  Em- 


298  EIGHTS    UNDER  THE    POLICY 

erson,  99  Mass.  154,  96  Am.  Dec.  720;    Insurance  Co.  v.  Weitz,  99 
Mass.  157. 

This  must  ordinarily  be  so  where  the  contract  is  directly  with  the 
beneficiary;  in  respect  to  policies  running  to  the  person  insured,  but 
payable  to  another  having  a  direct  pecuniary  interest  in  the  life  in- 
sured ;  and  where  the  proceeds  are  made  to  inure  by  positive  statutory 
provisions.  Mrs.  Hume  was  confessedly  a  contracting  party  to  the 
Maryland  policy;  and,  as  to  the  Connecticut  contracts,  the  statute 
of  the  state  where  they  were  made  and  to  be  performed  explicitly 
provided  that  a  policy  for  the  benefit  of  a  married  woman  shall  inure 
to  her  separate  use  or  that  of  her  children ;  but,  if  the  annual  pre- 
mium exceed  $300,  the  amount  of  such  excess  shall  inure  to  the  ben- 
efit of  the  creditors  of  the  person  paying  the  premiums. 

The  rights  and  benefits  given  by  the  laws  of  Connecticut  in  this 
regard  are  as  much  part  of  these  contracts  as  if  incorporated  there- 
in, not  only  because  they  are  to  be  taken  as  if  entered  into  there,  but 
because  there  was  the  place  of  performance,  and  the  stipulation  of 
the  parties  was  made  with  reference  to  the  laws  of  that  place.  And 
if  this  be  so  as  between  Hume  and  the  Connecticut  companies,  then 
he  could  not  have  at  any  time  disposed  of  these  policies  without  the 
consent  of  the  beneficiary;  nor  is  there  anything  to  the  contrary  in 
the  statutes  or  general  public  policy  of  the  District  of  Columbia.  It 
may  very  well  be  that  a  transfer  by  an  insolvent  of  a  Connecticut  pol- 
icy, payable  to  himself  or  his  personal  representatives,  would  be  held 
invalid  in  that  district,  even  though  valid  under  the  laws  of  Connecti- 
cut, if  the  laws  of  the  district  were  opposed  to  the  latter,  because  the 
positive  laws  of  the  domicile  and  the  forum  must  prevail ;  but  there 
is  no  such  conflict  of  laws  in  this  case,  in  respect  to  the  power  of  dis- 
position by  a  person  procuring  insurance  payable  to  another. 

The  obvious  distinction  between  the  transfer  of  a  policy  taken  out  by 
a  person  upon  his  insurable  interest  in  his  own  life,  and  payable  to 
himself  or  his  legal  representatives,  and  the  obtaining  of  a  policy  by 
a  person  upon  the  insurable  interest  of  his  wife  and  children,  and  pay- 
able to  them,  has  been  repeatedly  recognized  by  the  courts.     *     *     * 

Conceding,  then,  in  the  case  in  hand,  that  Hume  paid  the  premiums 
out  of  his  own  money,  when  insolvent,  yet,  as  Mrs.  Hume  and  the 
children  survived  him,  and  the  contracts  covered  their  insurable  in- 
terest, it  is  difificult  to  see  upon  what  ground  the  creditors,  or  the  ad- 
ministrators as  representing  them,  can  take  away  from  these  depend- 
ent ones  that  which  was  expressly  secured  to  them  in  the  event  of  the 
death  of  their  natural  supporter.  The  interest  insured  was  neither  the 
debtor's  nor  his  creditors'.  The  contracts  were  not  payable  to  the 
debtor,  or  his  representatives,  or  his  creditors.  No  fraud  on  the  part 
of  the  wife,  or  the  children,  or  the  insurance  company  is  pretended. 
In  no  sense  was  there  any  gift  or  transfer  of  the  debtor's  property, 
unless  the  amounts  paid  as  premiums  are  to  be  held  to  constitute  such 
eift  or  transfer.     This  seems  to  have  been  the  view  of  the  court  be- 

C5 


POLICY    PAYABLE   TO    A   THIRD    PERSON  299 

low,  for  the  decree  awarded  to  the  complainants  the  premiums  paid 
to  the  Virginia  Company  from  1874  to  18S1,  inclusive,  and  to  the 
other  companies  from  the  date  of  the  respective  policies ;  amountmg. 
with  interest,  to  January  4,  1883,  to  the  sum  of  $2,696.10,  which  sum 
was  directed  to  be  paid  to  Hume's  administrators  out  of  the  money 
which  had  been  paid  into  court  by  the  Maryland  and  Connecticut  Mu- 
tual Companies.  But,  even  though  Hume  paid  this  money  out  of  his 
own  funds  when  insolvent,  and  if  such  payment  were  within  the  stat- 
ute of  Elizabeth,  this  would  not  give  the  creditors  any  interest  in  the 
proceeds  of  the  policies,  which  belonged  to  the  beneficiaries  for  the 
reasons  already  stated. 

Were  the  creditors,  then,  entitled  to  recover  the  premiums  ?  These 
premiums  were  paid  by  Hume  to  the  insurance  companies,  and  to  re- 
cover from  them  would  require  proof  that  the  latter  participated  in  the 
alleged  fraudulent  intent,  which  is  not  claimed.  Cases  might  be  im- 
agined of  the  payment  of  large  premiums,  out  of  all  reasonable  pro- 
portion to  the  known  or  reputed  financial  condition  of  the  person  pay- 
ing, and  under  circumstances  of  grave  suspicion,  which  might  justi- 
fy the  inference  of  fraud  on  creditors  in  the  withdrawal  of  such  an 
amount  from  the  debtor's  resources ;  but  no  element  of  that  sort  ex- 
ists here. 

The  premiums  form  no  part  of  the  proceeds  of  the  policies,  and  can- 
not be  deducted  therefrom  on  that  ground.  Mrs.  Hume  is  not  shown 
to  have  known  of  or  suspected  her  husband's  insolvency,  and  if  the 
payments  were  made  at  her  instance,  or  with  her  knowledge  and  as- 
sent, or  if,  without  her  knowledge,  she  afterwards  ratified  the  act,  and 
claimed  the  benefit,  as  she  might  rightfully  do  (Thompson  v.  Ins. 
Co.,  46  N.  Y.  675),  and  as  she  does  (and  the  same  remarks  apply  to 
the  children),  then  has  she  thereby  received  money  which  ex  aequo  et 
bono  she  ought  to  return  to  her  husband's  creditors ;  and  can  the  de- 
cree against  her  be  sustained  on  that  ground?  If  in  some  cases  pay- 
ments of  premiums  might  be  treated  as  gifts  inhibited  by  the  statute 
of  Elizabeth,  can  they  be  so  treated  here? 

It  is  assumed  by  complainants  that  the  money  paid  was  derived  from 
Hume  himself,  and  it  is  therefore  argued  that  to  that  extent  his  means 
for  payment  of  debts  were  impaired.  That  the  payments  contributed 
in  any  appreciable  way  to  Hume's  insolvency,  is  not  contended.  So 
far  as  premiums  were  paid  in  1880  and  1881  (the  payments  prior  to 
those  years  having  been  the  annual  sum  of  $196.18  on  the  Virginia 
policy),  we  are  satisfied  from  the  evidence  that  Hume  received  from 
Mrs.  Pickrell,  his  wife's  mother,  for  the  benefit  of  Mrs.  Hume  and 
her  family,  an  amount  of  money  largely  in  excess  of  these  payments, 
after  deducting  what  was  returned  to  Mrs.  Pickrell ;  and  that,  in  pay- 
ing the  premiums  upon  procuring  the  policies  in  the  Maryland  and  the 
Connecticut  Mutual,  Hume  was  appropriating  to  that  purpose  a  part 
of  the  money  which  he  considered  he  thus  held  in  trust ;  and  we  think 


300  RIGHTS    UNDER  THE    POLICY 

that,  as  between  Hume's  creditors  and  Mrs.  Hume,  the  money  placed 
in  Hume's  hands  for  his  wife's  benefit  is,  under  the  evidence,  equitably 
as  much  to  be  accounted  for  to  her  by  Hume,  and  so  by  them,  as  is 
the  money  paid  on  her  account  to  be  accounted  for  by  her  to  him  or 
them. 

We  do  not,  however,  dwell  particularly  upon  this,  nor  pause  to  dis- 
cuss the  bearing  of  the  laws  of  the  states  of  the  insurance  companies 
upon  this  matter  of  the  payment  of  premiums  by  the  debtor  himself, 
so  far  as  they  may  differ  from  the  rule  which  may  prevail  in  the  Dis- 
trict of  Columbia,  in  the  absence  of  specific  statutory  enactment  upon 
that  subject,  because  we  prefer  to  place  our  decision  upon  broader 
grounds. 

In  all  purely  voluntary  conveyances  it  is  the  fraudulent  intent  of  the 
donor  which  vitiates.  If  actually  insolvent,  he  is  held  to  knowledge 
of  his  condition ;  and  if  the  necessary  consequence  of  his  act  is  to  hin- 
der, delay,  or  defraud  his  creditors,  within  the  statute,  the  presump- 
tion of  the  fraudulent  intent  is  irrebuttable  and  conclusive,  and  inquiry 
into  his  motives  is  inadmissible.  But  the  circumstances  of  each  particu- 
lar case  should  be  considered.  *  *  *  j^  considering  the  sufficiency 
of  the  debtor's  property  for  the  payment  of  debts,  the  probable,  im- 
mediate, unavoidable,  and  reasonable  demands  for  the  support  of  the 
family  of  the  donor  should  be  taken  into  the  account  and  deducted, 
having  in  mind  also  the  nature  of  his  business  and  his  necessary  ex- 
penses.   Emerson  v.  Bemis,  69  111.  541. 

This  argument  in  the  interest  of  creditors  concedes  that  the  debtor 
may  rightfully  preserve  his  family  from  suffering  and  want.  It  seems 
to  us  that  the  same  public  policy  which  justifies  this,  and  recognizes 
the  support  of  wife  and  children  as  a  positive  obligation  in  law  as  well 
as  morals,  should  be  extended  to  protect  them  from  destitution  after 
the  debtor's  death,  by  permitting  him,  not  to  accumulate  a  fund  as  a 
permanent  provision,  but  to  devote  a  moderate  portion  of  his  earnings 
to  keep  on  foot  a  security  for  support  already,  or  which  could  thereby 
be,  lawfully  obtained,  at  least  to  the  extent  of  requiring  that,  under 
such  circumstances,  the  fraudulent  intent  of  both  parties  to  the  trans- 
action should  be  made  out.  And  inasmuch  as  there  is  no  evidence 
from  which  such  intent  on  the  part  of  Mrs.  Hume  or  the  insurance 
companies  could  be  inferred,  in  our  judgment  none  of  these  premiums 
can  be  recovered. 

The  decree  is  affirmed,  except  so  far  as  it  directs  the  payment  to 
the  administrators  of  the  premiums  in  question  and  interest,  and,  as 
to  that,  is  reversed,  and  the  cause  remanded  to  the  court  below,  with 
directions  to  proceed  in  conformity  with  this  opinion.  Ordered  ac- 
cordingly. 


THE   RIGHTS   OF   THE   A88IGNEB  801 


IV.  The  Rights  of  the  Assignee 


10 


MORRIS  V.  GEORGIA  LOAN,  SAVINGS  &  BANKING  CO. 

(Supreme  Court  of  Georgia,  1S99.     100  r,a.  12,  34  S.  E.  378,  46  L.  R..  A.  506.) 

Action  by  L.  S.  Morris,  administrator,  against  the  Georgia  Loan, 
Savings  &  Banking  Company  and  others.  Judgment  for  defendants, 
and  plaintiff  brings  error. 

Little,  J.^^  Morris,  as  administrator  of  Ragland,  instituted  an  ac- 
tion against  Cassin,  Purtell,  and  the  Georgia  Loan,  Savings  &  Banking 
Company,  a  corporation  doing  business  in  the  city  of  Atlanta,  to  re- 
cover the  sum  of  $4,556.31,  with  interest,  which  he  claims  the  defend- 
ants to  be  due  to  him  under  the  following  alleged  facts  :  In  May,  1895, 
Ragland  procured  from  the  Connecticut  Mutual  Life  Insurance  Com- 
pany a  policy  of  insurance  upon  his  own  life  for  the  sum  of  $5,000, 
on  which  the  annual  premium  was  $103.15.  The  premiums  were  pay- 
able quarterly,  and  Ragland  paid  such  premiums  as  were  due  on  May 
27  and  August  27,  1895.  Being  unable  to  continue  the  payment  of  the 
premiums,  Cassin  and  Purtell  agreed  to  advance  to  him  the  amounts 
necessary  to  pay  the  same  as  they  became  due,  and,  to  secure  payment 
of  the  amount  so  advanced,  Ragland  assigned  the  policy  to  Cassin  and 
Purtell,  who  required  and  received  of  Ragland  his  promissory  note, 
dated  December  11,  1895,  for  $4,300  principal,  to  become  due  one  year 
after  date.  This  pretended  debt  was  fictitious,  except  as  to  the  pre- 
miums advanced  by  Cassin  and  Purtell.  At  the  time  of  these  transac- 
tions, Cassin  was  the  cashier  of  the  defendant  banking  company.  After 
the  execution  of  the  note,  Cassin  and  Purtell  indorsed  it  in  blank,  and 
made  a  pretended  transfer  of  it  to  the  defendant  the  banking  company, 
which  took  the  same  with  notice  of  its  character.  On  November  5, 
1896,  Cassin  and  Purtell  also  transferred  the  policy  of  insurance  to 
the  banking  company.  A  short  time  thereafter  Ragland  died.  Cassin, 
as  cashier  of  the  banking  company,  made  out  and  forwarded  proofs 
of  death,  and  on  the  31st  day  of  December,  1896,  the  insurance  com- 
pany paid  to  the  banking  company  the  face  value  of  the  policy  ($5,000). 
which  was  consented  to  by  the  plaintiff  in  error  under  notice  that  he. 
as  administrator,  would  claim  from  the  banking  company  the  amount 
so  paid,  less  what  had  been  advanced  to  Ragland  by  Cassin  and  Pur- 
tell. Of  the  $5,000  the  banking  company  retained  $4,663.11,  and 
$309.89  was  received  by  Ragland's  administrator.  By  the  terms  of 
the  policy,  the  amount  insured  was  payable  to  the  representatives  of 

10  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  14.3-145.  See, 
also,  Cooley,  Briefs  on  tlie  Law  of  Insurance,  vol.  4,  p.  3802  et  seq. 

11  Part  of  the  opinion  is  omitted. 


302  RIGHTS    UNDER   THE    POLICY 

Ragland,  and  the  only  claim  that  Cassin  and  Purtell  and  the  banking- 
company  have  on  the  fund  is  the  amount  of  one  premium,  $106.  No 
services  were  rendered,  accepted,  or  contracted  for  from  Cassin,  Pur- 
tell, or  the  banking  company.     *     *     * 

It  is  insisted  on  the  part  of  the  plaintiff  in  error  that  there  was 
evidence  before  the  court  which  would  have  authorized  the  jury  to 
have  found  that,  having  made  a  valid  contract  of  insurance  on  his 
life,  payable  to  his  executors,  administrators,  and  assigns,  Ragland 
was  induced  by  the  two  defendants,  Cassin  and  Purtell,  to  transfer 
and  assign  the  policy  to  them  for  a  consideration  of  $25  or  $30  in 
addition  to  the  payment  of  certain  subsequent  premiums  as  they  fell 
due,  and  that  the  note  of  $4,300  delivered  by  Ragland  to  the  assignees 
was  really  without  any  consideration,  and  made  as  a  cover  to  conceal 
the  nakedness  of  the  transfer.  An  examination  of  the  evidence  con- 
tained in  the  record  shows  that  the  policy  was  issued  to  Ragland  on 
May  27,  1895,  and  that  the  assignment  of  the  policy  to  Cassin  and 
Purtell  was  made  on  December  11,  1895,  more  than  six  months  there- 
after. It  does  not  appear  that  Cassin  paid  any  premiums  until  May 
subsequent  to  the  assignment,  and,  for  aught  that  appears  in  the  record, 
the  policy  evidences  a  good  and  valid  contract  insuring  the  life  of 
Ragland.  If  it  be  true  that  there  was  no  consideration  for  the  note 
of  $4,300,  and  that  the  same  was  executed  and  delivered  by  Ragland 
only  for  the  purpose  of  enabling  the  assignees  to  claim  the  entire 
amount  of  the  policy,  it  must  fail  to  accomplish  that  result ;  for,  as 
a  matter  of  law,  an  assignment  of  a  policy  of  life  insurance  to  a 
creditor  by  the  insured,  and  for  the  purpose  of  securing  his  indebted- 
ness, is  valid  only  in  the  amount  of  the  debt  and  the  expense  in- 
curred by  the  creditor  in  keeping  up  the  policy.  In  2  May,  Ins.  § 
459a,  it  is  said:  "A  creditor's  claim  upon  the  proceeds  of  insurance 
mtended  to  secure  the  debt  should  go  no  further  than  indemnity,  and 
all  beyond  the  debt,  premiums,  and  expenses  should  go  to  the  debtor 
and  his  representatives,  or  remain  with  the  company,  according  as  the 
insurance  is  upon  life  or  on  property."  And  in  13  Am.  &  Eng.  Enc. 
Law  (1st  Ed.)  p.  648,  it  is  declared,  on  the  authority  of  adjudicated 
cases  cited,  that,  "where  the  assignment  is  for  the  purpose  of  secur- 
ing a  creditor,  although  he  is  entitled  to  recover  the  face  of  the  policy, 
he  cannot  hold  what  is  not  necessary  for  his  indemnity.  The  legal 
representatives  of  the  debtor  will  be  entitled  to  the  balance." 

A  case  which  seems  directly  in  point  is  that  of  Cammack  v.  Lewis, 
15  Wall.  643,  where  it  appeared  that  L.  was  indebted  to  C.  in  the  sum 
of  $70,  and,  at  C.'s  suggestion,  L.  took  out  a  policy  on  his  life  for 
$3,000,  for  which  C.  paid  the  premium.  Immediately  after  the  policy 
was  issued  L.  gave  to  C.  a  note  for  $3,000,  and  assigned  to  him  the 
policy  of  insurance.  A  short  time  thereafter  L.  died,  and  the  widow 
filed  a  bill  to  recover  the  amount  of  the  policy,  or,  rather,  such  a  part 
of  it  as  she  had  not  theretofore  received.  In  delivering  the  opinion 
of  the  court,  Mr.  Justice  Miller  said :   "We  think  that  Cammack  could, 


RIGHTS    OF   MORTGAGOR   AND   MORTGAGEE  303 

in  equity  and  good  conscience,  only  hold  the  policy  as  security  for  what 
Lewis  owed  him  when  it  was  assigned  and  such  advances  as  he  might 
afterwards  make  on  account  of  it,  and  that  the  assignment  of  the  policy 
to  him  was  only  valid  to  that  extent."  See,  also,  the  case  of  Bank 
V.  Loh,  104  Ga.  446,  31  S.  E.  459,  44  L.  R.  A.  372,  where  this  court 
held  that  a  creditor  has,  for  the  purpose  of  indemnifying  himself 
against  loss  and  for  no  other,  an  insurable  interest  in  the  life  of  his 
debtor,  and  that  the  insurance  will  be  available  to  the  creditor  to  no 
greater  extent  than  the  amount  of  his  insurable  interest  at  the  time 
the  insurance  was  effected,  viz.  the  amount  of  the  then  existing  indebt- 
edness. So  that  if  it  be  true  that,  at  the  time  he  executed  and  delivered 
the  promissory  note  for  $4,300  and  assigned  the  policy  of  insurance 
to  Cassin  and  Purtell,  Ragland  was  in  fact  a  debtor  to  the  assignees  in 
an  amount  less  than  the  face  of  the  policy,  the  effect  of  the  assignment 
was  to  vest  in  the  assignees  title  to  so  much  of  the  fund  collected  as 
equaled  the  amount  of  the  true  indebtedness.  The  original  contract 
of  insurance  made  the  executors  and  administrators  of  Ragland,  as 
well  as  his  assigns,  the  payees  of  the  policy,  and  after  payment  of  the 
debt  his  assignment  secured  the  administrator  would  in  law  be  entitled' 
to  have  the  balance. 

But  it  is  urged  that,  even  if  the  note  was  without  consideration,  the 
inference  is  legally  irresistible  that  the  purpose  of  the  parties  in  the 
execution  of  the  note  and  the  .assignment  of  the  policy  of  insurance 
was  an  accommodation.  How  this  is  we,  of  course,  do  not  know.  Only 
a  jury,  under  proper  instructions,  should  determine  that  fact.  *  *  * 
Reversed.^^ 


V.  Rights  of  Mortgagor  and  Mortgagee  ^' 


HOME  INS.  CO.  v.  MARSHALL. 
(Supreme  Court  of  Kansas,  1892.     48  Kan.  235,  29  Pac.  IGl.) 

Commissioners'  decision. 

Action  by  the  Home  Insurance  Company  against  D.  W.  IMarshall 
and  wife  to  foreclose  a  mortgage.  From  a  judgment  in  its  favor  for 
only  $103  plaintiff  brings  error. 

Green,  C.^*  The  plaintiff  in  error  brought  an  action  to  foreclose 
a  mortgage  executed  by  D.  W.  ^Marshall  and  wife  to  the  Equitable 

12  See,  also,  Nye  v.  Grand  Lodge  A.  O.  U.  W..  ante,  p.  19.  Kii,'hts  of 
assignees  of  fire  policies,  see  New  v.  German  Ins.  Co.,  ante,  p.  15,  ami  Ka.se 
V.  Hartford  Fire  Ins.  Co.,  ante,  p.  17.    See,  also,  Quarles  v.  Clayton,  ante,  p.  10. 

13  For  discussion  of  principles,  see  Vance  on  Insurance.  §§  140.  147.  See,, 
also,  Cooley,  Briefs  on  tlie  Law  of  Insurance,  vol,  4,  p,  3G99  et  seq, 

14  Part  of  the  opinion  is  omitted. 


304  EIGHTS    UNDER  THE    POLICY 

Trust  &  Investment  Company  to  secure  the  payment  of  eight  hundred 
dollars,  dated  February  1,  1886,  due  in  five  years.  The  notes  and  mort- 
gage were  assigned  by  the  payee  to  the  Massachusetts  Mutual  Life 
Insurance  Company,  and  on  December  27,  1887,  assigned  to  the  Home 
Insurance  Company,  the  plaintiff  below.  The  defendants  below  ad- 
mitted the  execution  of  the  notes  and  mortgage,  but  alleged  payment 
by  the  collection  of  an  insurance  policy  of  $800,  which  they  were  re- 
quired by  the  mortgage  to  take  out  upon  the  building  situated  upon 
the  mortgaged  premises,  which  building  they  alleged  had  been  destroyed 
by  fire  on  the  13th  of  June,  1887;  that  the  plaintiff  in  error,  after  it 
had  received  notice  of  the  loss,  sent  an  adjuster  to  inspect  the  same, 
and,  for  the  purpose  of  defrauding  the  defendant  in  error  out  of  the 
insurance,  took  an  assignment  of  the  notes  and  mortgage  sued  upon, 
including  the  policy  of  insurance.  A  jury  was  waived,  and  the  court 
found,  in  substance,  that  the  material  allegations  of  the  petition  were 
true;  that  the  sum  of  $800  and  interest  was  due  from  the  defendants 
upon  the  mortgage. 

The  court  then  made  the  following  findings  in  relation  to  the  set- 
off claimed  by  the  defendants :  "The  court  finds  that  the  plaintiff  issued 
to  the  defendant  Daniel  W.  Marshall  a  policy  of  insurance  on  the 
dwelling-house  situated  on  the  mortgaged  property  for  $800,  for  the 
term  of  five  years,  payable  to  the  Equitable  Trust  &  Investment  Com- 
pany, mortgagee  and  assignor  of  the  mortgage  to  the  IMassachusetts 
Mutual  Life  Insurance  Company,  and  by  said  company  assigned  to 
plaintiff ;  that  in  June,  1887,  the  insured  property  was  burned,  and 
totally  lost,  of  which  the  plaintiff'  was  notified,  and  by  its  agent  and 
adjuster  made  an  examination,  and  inspected  the  affair,  and  afterwards 
paid  to  the  Massachusetts  jMutual  Life  Insurance  Company  the  amount 
of  the  policy,  and  took  an  assignment  of  the  mortgage  and  of  the  in- 
surance policy;  that  the  plaintiff'  never  adjusted  this  loss  by  fire  with 
the  defendant  Daniel  W.  Marshall,  and  on  the  7th  day  of  September, 
1888,  commenced  this  suit  to  foreclose  the  mortgage."  The  court 
found  that  the  defendants  were  entitled  to  such  a  set-off  as  reduced  the 
claim  of  the  plaintiff  to  $103,  and  gave  judgment  in  favor  of  the  plain- 
tiff for  such  amount. 

It  is  first  contended  that  there  is  no  finding  by  the  court  that  the 
plaintiff  was  ever  indebted  to  the  defendants  upon  the  insurance  policy, 
or  that  the  policy  found  to  have  been  issued  was  valid  or  in  force  at 
the  time  of  the  fire,  or  that  any  of  the  conditions  of  the  policy  which 
were  necessary  to  make  it  the  basis  for  a  claim  against  the  plaintiff 
were  complied  with  by  the  insured.  Was  such  finding  necessary  to 
fix  the  liability  of  the  insurance  company  for  the  amount  of  the  policy? 
The  court  did  find  that  the  property  insured  was  destroyed  by  fire  in 
June,  1887,  and  that  there  was  a  total  loss  of  the  property  described  in 
the  policy;  that  the  company  had  notice  of  such  loss,  and  inspected 
the  same.  The  court  also  found  that  it  paid  to  the  Massachusetts  Mu- 
tual Life  Insurance  Company  the  amount  of  the  policy,  and  took  an 


RIGHTS  OF  MORTGAGOR  AND  MORTGAGEE  305 

assignment  of  the  mortgage  and  the  insurance  policy.  How  are  we 
to  regard  this  finding  of  the  court?  Is  it  not  to  be  taken  as  a  recogni- 
tion of  the  poHcy  by  the  insurer?  Why  should  the  insurance  com- 
pany pay  the  amount  of  the  policy  to  the  holder  of  the  mortgage  and 
policy  unless  the  latter  was  valid?  The  rule  has  been  stated  in  Wood 
on  Fire  Insurance  (volume  2,  §  452):  "In  all  cases  where  a  party  has 
an  election,  he  will  be  bound  by  the  course  he  first  adopts,  with  full 
knowledge  of  all  the  facts ;  and  any  act  that  indicates  that  an  election 
has  been  made,  and  that  in  any  respect  affects  the  rights  of  the  other 
party,  estops  him  from  afterwards  doing  anything  inconsistent  with 
such  election.  Therefore,  where  an  insurance  company  is  in  a  posi- 
tion where  it  may  be  liable  upon  a  policy  or  not,  at  its  election,  when- 
ever it  does  an  act  that  indicates  that  it  has  elected  to  treat  the  policy 
as  the  basis  of  a  legal  claim  against  it,  it  cannot  afterwards  recede, 
if  anything  has  been  done  of  a  decisive  character  indicating  its  elec- 
tion." 

We  think  the  finding  of  the  court  that  the  insurance  company  paid 
to  the  holder  of  its  policy  the  amount  named  therein,  clearly  estab- 
lished the  fact  that  it  recognized  the  policy  as  a  valid  and  subsisting 
obligation.  The  insurance  company  had  no  right  to  the  full  amount 
due  upon  the  mortgage,  after  recognizing  the  validity  of  the  policy. 
The  insurance  was  collateral  to  the  debt,  and  the  amount  paid  upon 
the  policy  should  have  been  applied  as  a  payment  upon  the  debt  secured 
by  the  mortgage.  Equity  and  fair  dealing  between  the  parties  to  this 
contract  of  insurance  require  that  the  insurer  should  be  required  to 
make  such  application,  in  accordance  with  the  finding  of  the  court. 

The  plaintiff  in  error  contends  that  the  special  findings  of  the  court 
are  not  based  upon  the  allegations  of  the  answer,  and  are  therefore 
not  sustained  by  the  pleadings.  The  answer  alleged,  among  other 
things,  that  the  debt  secured  by  the  notes  and  mortgage  sued  upon 
had  been  paid.  It  then  stated  what  had  been  done  by  the  plaintiff  in 
reference  to  the  loss  and  the  payment  of  the  amount  of  the  policy  to 
the  holder  of  the  mortgage  and  policy.  In  a  case  not  unlike  this,  in 
some  respects,  it  was  decided  by  this  court  that,  where  the  jury  had 
found  that  the  mortgagee  had  received  from  the  insurer  and  other 
companies  a  sum  sufficient  to  pay  off  the  bond  and  mortgage,  it  au- 
thorized the  legal  conclusion  that  the  payment  was  in  satisfaction  of 
the  note  and  mortgage,  and  not  for  the  purposes  of  assignment.  'Tn 
other  words,  the  insurance  company  had  obligated  itself  to  pay  the 
loss  to  the  mortgagee.  It  did  so,  but,  instead  of  discharging  the  mort- 
gage, it  took  an  assignment  of  it  and  sought  to  enforce  it.  There 
can  be  no  doubt  but  that  the  legal  conclusion  irresistibly  follows  the 
findings  of  the  jury."  Insurance  Co.  v.  Smelker,  38  Kan.  288,  16  Pac. 
735.  The  legal  conclusion  of  the  court  was  that  the  payment  of  the 
policy  by  the  company  was  pro  tanto  to  be  applied  in  satisfaction  of 
the  note  and  mortgage,  and  was  not  made  for  the  purpose  of  an  as- 
CooLEY  Ins. — 20 


306  RIGHTS    UNDER  THE    POLICY 

signment.  Under  this  view  of  the  findings  they  are  clearly  in  accord- 
ance with  the  allegations  of  the  answer.  *  *  *  It  is  recommended 
that  the  judgment  be  affirmed. 

FtR  Curiam.    It  is  so  ordered;  all  the  justices  concurring.^^ 


VI.  Subrogation 


10 


DILLING  V.  DRAEMEU 

(Common  Pleas  of  New  York  City  and  County,  General  Term,  1890.    9  N.  Y. 

Supp.  497.) 

Action  by  Karl  Billing  against  William  Draemel,  to  recover  on  a 
certificate  of  fire  insurance.  Plaintiff  recovered  a  judgment,  from 
which   defendant   appeals. 

LarremoriJ,  C.  J.  The  plaintiff  held  a  certificate  as  a  member  of 
a  voluntary  association,  insuring  his  furniture  and  household 
goods  against  loss  "either  immediate,  through  fire,  explosion,  or 
collapse  of  building,  or  mediate,  through  water  in  extinguish- 
ing fire."  Subsequently  the  easterly  wall  of  the  house  he  occupied 
fell,  in  consequence  of  an  excavation  made  upon  the  adjoining  lot. 
Plaintiff  in  the  first  instance  claimed  that  his  landlord  was  liable  to 
him  in  tort  as  a  wrong-doer  by  reason  of  the  falling  of  the  wall  andJ 
brought  an  action  against  him  to  recover  damages  for  the  loss,  among 
other  things,  to  his  goods,  merchandise,  and  other  property.  That 
action  was  settled  in  consideration  of  $300,  paid  by  his  landlord  to 
the  plaintiff,  whereupon  he  executed  and  delivered  to  the  latter  a 
general  release  under  seal  against  all  claims,  dues,  and  demands  what- 
soever. Thereafter  he  brought  this  action  to  recover  that  proportion 
of  his  loss  over  the  amount  of  $300,  claiming  that  he  had  a  dis- 
cretion at  his  own  pleasure  to  apportion  such  loss.  He  recovered  a 
judgment,  from  which  this  appeal  is  taken. 

The  case  was  decided  in  the  court  below  upon  the  theory  that  the 
plaintiff  had  not  received  all  the  damages  sustained  by  him  from  the 
wrong-doer,  and  that,  although  he  had  absolutely  released  the  wrong- 
doer such  action  might  be  maintained.  It  is  well  settled  that,  if  a  loss 
under  a  policy  of  insurance  is  occasioned  by  the  wrongful  act  of  a 
third  party,  the  insurer  occupies  the  position  of  a  mere  surety,  and 
the  wrong-doer  that  of  a  principal  debtor;  and  all  the  incidents  of 
suretyship  attach  to  the  position  of  the  underwriter  in  such  a  case, 

15  See,  also,  Kase  v.  Hartford  Fire  Ins.  Co.,  ante,  p.   17. 

16  For  discussion  of  principles,  see  Vance  on  Insurance.  §§  149,  150.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3^92  et  seq. 


SUBROGATION  307 

including  the  right  of  subrogation.  Hall  v.  Railroad  Cos.,  13  Wall. 
367,  Z7Z,  20  L.  Ed.  594. 

The  same  principle  is  applicable  to  a  contract  of  insurance,  if  the 
surety  destroys  the  remedy  of  subrogation,  and  relieves  the  assurer 
to  the  full  extent  to  which  the  wrong-doer  could  have  been  made 
liable  for  the  loss.  Sheld.  Subr.  §  222;  Insurance  Co.  v.  Storrow, 
5  Paige  (N.  Y.)  285.  Both  parties  rely  on  the  case  of  Connecticut 
Fire  Ins.  Co.  v.  Erie  R.  Co.,  7Z  N.  Y.  399,  29  Am.  Rep.  171.  A 
careful  examination  of  that  case  shows  that  it  is  an  authority  against 
the  ruling  of  the  court  below.  That  action  was  brought  by  an  under- 
writer to  recover  from  the  Erie  Railroad  Company,  under  the  right 
of  subrogation,  the  amount  paid  by  the  underwriter  to  the  assured. 
A  release  was  given  by  the  assured  to  the  company,  which  was  not 
absolute  in  terms,  as  is  the  release  in  this  case.  The  release  in  the 
case  contained  a  statement  that  the  settlement  did  not  include  any 
claim  the  assured  had  against  the  underwriter,  and  the  court  held 
that,  because  of  that  reservation,  the  right  of  subrogation  of  the 
underwriter  was  preserved  as  against  the  railroad  company,  and  that 
the  release  was  limited,  and  by  its  terms  preserved  the  rights  of  the 
insured  to  collect  what  the  insurance  company  owed  him. 

The  release  in  this  case  is  a  general  release  without  any  such  reserva- 
tion, and  the  $300  paid  cannot  be  considered  as  a  payment  pro  tanto 
for  the  loss.  Such  a  release  destroyed  the  right  of  subrogation.  If 
the  assured,  by  his  own  act,  absolutely  and  without  reservation  re- 
leases the  wrong-doer,  he  thereby  discharges  the  insurer  to  the  full 
extent  to  which  he  has  defeated  the  insurer's  remedy  over  by  right 
of  subrogation.  Insurance  Co.  v.  Storrow,  supra ;  Carstairs  v.  In- 
surance Co.  (C.  C.)  18  Fed.  473.  The  judgment  appealed  from  should 
be  reversed,  with  costs. 


CHICKASAW  COUNTY  FARMERS'  MUT.  FIRE  INS.  CO.  v. 

WELLER. 

(Supreme  Court  of  Iowa,  1S96.     98  Iowa,  731,  GS  N.  W.  443.) 

Action  by  the  Chickasaw  County  Farmers'  Mutual  Fire  Insurance 
Company  to  recover  $110,  with  interest,  alleged  to  have  been  fraudu- 
lently obtained  by  the  defendant  from  the  plaintiff.  Judgment  for 
the  plaintiff.     Defendant  appeals. 

Given,  J.^'^  1.  The  learned  district  judge  made  the  following  find- 
ings of  fact  and  of  law,  and  we  think  the  findings  of  facts  are  fully 
sustained  by  the  evidence : 

"After  the  evidence  and  arguments  of  counsel  were  concluded,  the 
following  findings  of  fact  and  law  were  made  by  the  court,  to-wit: 
That  plaintiff,  the  Chickasaw  County  Farmers'  Mutual  Fire  Insur- 

17  The  statement  of  facts  is  rewritten  and  part  of  tbe  opinion  is  omitted- 


308  RIGHTS    UNDER  THE    POLICY 

ance  Company,  a  corporation  duly  organized  under  the  laws  of  Iowa, 
issued  to  the  defendant  an  insurance  policy  in  the  year  1875,  which 
policy  has  remained  in  full  force  from  the  time  it  was  issued  down  to 
the  date  of  the  commencement  of  this  action;  that  on  or  about  the 
10th  day  of  September,  1893,  some  stacks  of  hay  covered  by  the  in- 
surance company  with  the  insurance  policy  thus  issued  to  the  defend- 
ant were  burned,  and  the  defendant  sustained  a  loss  thereby,  for 
which  the  plaintiff  was  liable  under  this  policy;  that  both  the  plain- 
tiff and  the  defendant  claim,  and  have  claimed  in  attempting  to  ad- 
just the  loss,  that  the  loss  was  occasioned  through  the  negligence  of 
the  Chicago  Great  Western  Railway  Company,  and  that  the  Chicago 
Great  Western  Railway  Company  was  ultimately  liable  for  the  pay- 
ment of  the  loss;  that  on  or  about  the  19th  day  of  March,  1894,  the 
defendant,  having  made  a  claim  against  the  said  railway  company  for 
the  loss  of  the  hay  in  question,  made  a  settlement  with  that  company, 
and  on  the  24th  day  of  ^larch,  1894,  received  full  payment  of  said 
railway  company  for  the  loss  thus  sustained;  that  on  the  same  day 
that  the  settlement  was  made  with  the  railway  company  the  defend- 
ant notified  the  plaintiff  that  he  was  ready  to  receive  and  receipt  for 
$110  from  that  company  in  payment  of  the  same  loss,  this  being  the 
amount  that  had  been  agreed  upon  between  him  and  the  insurance 
company  as  the  amount  to  be  paid  by  the  company  for  the  loss ;  that 
the  defendant,  in  thus  notifying  the  plaintiff,  did  not  notify  the  plain- 
tiff that  he  had  made  a  settlement  of  the  same  claim  with  the  railway 
company,  and  that  the  insurance  company  or  its  officers  had  no  no- 
tice that  the  railway  comjjany  had  thus  settled  and  paid  the  loss  to 
the  defendant ;  that  on  the  12th  day  of  April,  1894,  and  without  any 
knowledge  or  notice  that  the  loss  had  been  adjusted  by  the  railway 
company  with  the  defendant,  the  plaintiff  paid  the  defendant  said  sum 
of  $110,  and  took  his  receipt  therefor;  that  the  plaintiff  in  this  action 
claimed  during  all  the  negotiations  for  settlement,  and  the  defendant 
knew  that  the  plaintiff  claimed,  that  if  it  paid  the  loss  to  him  under 
the  policy  issued  to  him  it  was  the  insurance  company's  right  to  re- 
cover back  the  amount  thus  paid,  if  it  could,  from  the  railway  com- 
pany. 

"As  a  conclusion  based  on  these  facts,  I  find  that  the  settlement 
made  by  the  railway  company  with  the  defendant  extinguished  his 
claim,  both  as  against  the  railway  company  and  the  insurance  com- 
pany, and  in  receiving  money  from  the  insurance  company  after  hav- 
ing received  it  from  the  railway  company,  and  without  giving  the  in- 
surance company  notice  of  the  fact  that  he  had  thus  received  the 
money,  he  received  the  money  wrongfully,  and  is  liable  to  refund  the 
money  to  the  company,  and  that  the  plaintiff  is  entitled  to  judgment 
against  him  for  it  in  this  action;  and  judgment  will  be  entered  ac- 
cordingly, with  interest  at  6  per  cent,  from  the  11th  day  of  April." 

2.  There  is  no  question  in  this  case  but  that  the  defendant  was  en- 
titled to  full  compensation  from  the  railway  company   for  the  loss 


SUBROGATION  309 

sustained  by  him  in  consequence  of  the  fire  set  out  by  that  company. 
Neither  is  it  questioned  but  that  he  was  entitled  to  full  indemnity  un- 
der his  contract  of  insurance,  not  exceeding"  the  amount  of  the  insur- 
ance, from  the  plaintiff.  One  contention  is  whether  he  was  entitled 
to  full  compensation  from  the  railway  company,  and  also  from  the 
plaintiff.  This  contract  of  insurance  is  a  contract  of  indemnity,  by 
which  the  plaintiff  agreed  to  indemnify  the  defendant  against  loss  or 
damages  to  the  insured  property  by  fire  or  lightning,  not  exceeding  the 
amount  of  the  insurance.  The  law  is  well  settled  that  in  cases  like 
this  the  insurer,  upon  payment  of  the  loss,  is  subrogated  to  all  the 
rights  of  the  insured  against  the  person  whose  fault  or  negligence 
caused  the  loss.  "If  insured  buildings  or  other  property  be  destroyed 
through  the  negligence  of  some  j^erson  other  than  the  owner,  the  in- 
surance company,  upon  the  payment  of  the  loss,  will  be  subrogated  to 
the  right  of  the  owner  to  recover  from  the  wrongdoer.  The  insured 
cannot  bar  the  insurer's  right  of  action  by  executing  a  release  of 
damages  to  the  wrongdoer,  though  he  may  release  the  wrongdoer 
from  all  claim  for  injuries  not  covered  by  the  policy  without  impair- 
ing his  rights  against  the  underwriter.  If  he  obtain  satisfaction  from 
the  wrongdoer,  having  previously  received  payment  of  the  loss  from 
the  insurer,  he  must  account  therefor  to  the  latter."  24  Am.  &  Eng. 
Enc.  Law,  306,  308-310,  and  cases  cited.  Under  these  recognized 
principles  of  law,  it  is  clear  that  upon  payment  of  the  loss  the  plain- 
tiff would  have  been  subrogated  to  all  the  rights  of  the  defendant 
against  the  railway  company,  and  that  the  defendant  could  not  defeat 
that   right  of   subrogation  by  releasing  the   railway  company. 

Appellant  instances  the  case  of  one  who  has  insurance  upon  his 
life,  and  is  killed  by  the  negligence  of  the  employes  of  a  railway  com- 
pany, and  contends  that  because  the  estate  has  a  claim  for  damages 
against  the  railroad  company  it  does  not  excuse  the  insurance  com- 
pany from  liability.  He  cites  24  Am.  &  Eng.  Enc.  Law,  319.  It 
is  there  said,  "A  contract  of  life  insurance  is  not  a  contract  of  in- 
demnity, and  the  insurer  who  pays  a  loss  under  such  a  contract  is 
not  entitled  to  be  subrogated  to  any  rights  which  the  personal  repre- 
sentative of  the  deceased  may  have  against  other  persons."  The  same 
is  true  as  to  the  other  instance  given  by  appellant,  of  one  who  pur- 
chased a  horse  with  the  special  warranty  that  it  is  not  timid,  and  will 
not  shy  in  crossing  bridges,  and  afterwards  the  horse  does  shy.  and 
falls  from  a  bridge,  and  is  drowned,  for  want  of  sufficient  guards  on 
the  bridge.  In  such  case  the  contract  of  warranty  is  not  one  of  in- 
demnity merely.  We  think  it  entirely  clear,  under  the  law,  that  de- 
fendant was  not  entitled  to  recover  for  the  loss  of  hay  in  stack  from 
both  of  these  parties. 

3.  Defendant  was  entitled  to  full  compensation  for  the  loss  sus- 
tained. His  claim  against  the  railway  company  was  for  damages  to 
his  meadow  and  fence  posts,  in  addition  to  the  loss  of  the  hay ;  and 
he  contends  that  he  only  received  part  compensation  from  the  railway 


310  RIGHTS   UNDER  THE    POLICY 

company,  and  that  the  amounts  received  from  both  companies  do  not 
exceed  the  actual  loss.  In  his  settlement  with  the  railway  company 
the  hay  was  estimated  separately,  and  the  defendant  was  compensated 
to  the  full  value  thereof. 

Defendant  contends  that  the  plaintiff  knew  he  was  claiming  pay- 
ment from  the  railway  company,  and  that  the  payment  made  by  the 
plaintiff  to  him  was  a  voluntary  payment,  and  cannot  be  recovered 
back.  Let  it  be  conceded  that  the  plaintiff  did  know  that  the  de- 
fendant was  making  a  claim  against  the  railway  company.  It  is  en- 
tirely clear  that  at  the  time  of  demanding  and  receiving  payment  from 
the  plaintiff  the  defendant  concealed  the  fact  that  he  had  made  a  set- 
tlement with  the  railway  company,  and  had  received  payment  from 
that  company.  "When  one  pays  money  in  ignorance  of  circumstances 
with  which  the  receiver  is  acquainted,  but  does  not  disclose,  and 
which,  if  disclosed,  would  have  avoided  the  payment,  the  receiver  acts 
fraudulently,  and  the  money  may  be  recovered  back."'  8  Am,  &  Eng. 
Enc.  Law,  645.  There  can  be  no  doubt  that  had  the  facts  been  dis- 
closed by  the  defendant,  as  it  was  his  duty  to  do,  the  plaintiff  would 
not  have  made  this  payment.  Therefore  it  was  not  a  voluntary  pay- 
ment, but  one  obtained  by  fraud,  and  may  be  recovered  back.     *     *     * 

We  find  no  error  prejudicial  to  appellant,  and  the  judgment  of  the 
district  court  is  therefore  affirmed. 


NORWICH  UNION  FIRE  INS.  SOC.  v.  STANDARD  OIL  CO. 

(Circuit  Court  of  Appeals  of  United  States,  Eighth  Circuit,  1894.    59  Fed.  984, 

8  C.  C.  A.  433.) 

In  Error  to  the  Circuit  Court  of  the  United  States  for  the  District 
of  Kansas. 

This  was  an  action  by  the  Norwich  Union  Fire  Insurance  Society, 
of  Norwich,  England,  against  the  Standard  Oil  Company  and  the 
Goodlander  Mill  Company,  to  recover  the  amount  of  certain  insurance 
paid  by  the  plaintiff  to  the  defendant  mill  company,  upon  the  ground 
that  the  property  was  burned  through  the  culpable  negligence  of  the 
defendant  oil  company.     A  demurrer  to  the  complaint  was  sustained. 

It  is  alleged  in  the  petition  that  in  the  year  1887  the  Norwich  Fire 
Insurance  Society  issued  a  policy  of  insurance,  in  the  sum  of  $3,000, 
to  the  Goodlander  Mill  Company, — a  corporation  organized  under  the 
laws  of  Kansas,  and  doing  business  at  Ft.  Scott;  that  the  insurance 
was  upon  certain  wheat  owned  by  the  mill  company.  The  petition 
further  shows  that  the  German  Fire  Insurance  Company  had  also  is- 
sued a  policy  of  insurance  in  the  same  amount — $3,000 — to  the  mill 
company,  upon  wheat.  The  last-mentioned  policy  having  been  as- 
signed to  the  plaintiff  in  this  case,  plaintiff  brings  this  suit  to  recover 
the  amount  of  both  policies,— $6,000.    The  petition  further  shows  that 


SUBROGATION  311 

after  the  issuance  of  the  policies  of  insurance  the  wheat  was  destroyed 
by  fire,  and  that  these  insurance  companies  paid  the  loss  in  the  amount 
of  their  respective  policies,  $3,000  each,  and  took  an  assignment  in 
writing  of  whatever  claim  the  mill  company  might  have  against  the 
defendant  because  of  the  loss  to  the  amount  of  their  policies.  It  is 
further  alleged  that  the  fire  occurred  by  reason  of  the  negligence  of 
the  defendant  the  Standard  Oil  Company.  The  facts  stated  in  the 
petition  are  to  the  efifect  that  the  defendant  shipped  a  tank  car  of 
petroleum  from  Lima,  Ohio,  consigned  to  the  gas  company  at  Ft. 
Scott,  which  car  was  placed  upon  a  side  track  near  the  mill  and  ele- 
vator of  the  Goodlander  Mill  Company,  and  that  the  employes  of  the 
gas  company  attempted  to  unload  the  car,  but,  because  of  the  defective 
construction  of  the  car,  the  oil  escaped,  took  fire,  and  the  mill  and  its 
contents  were  destroyed.  It  appears  upon  the  face  of  the  petition  that 
the  wheat  destroyed  by  fire  was  of  the  value  of  $20,000,  and  that  there 
were  other  policies  of  insurance  upon  the  wheat,  in  addition  to  those 
upon  which  this  suit  is  based.  The  written  assignment  given  by  the 
Goodlander  Mill  Company  to  the  plaintiff  and  to  the  German  Fire 
Insurance  Company  fixes  the  value  of  the  wheat  destroyed  at  $40,- 
000.  While  this  assignment  is  not  in  the  body  of  the  petition,  a  copy 
of  it  is  attached  to,  and  made  a  part  of,  the  petition.  Hence,  it  is 
clearly  shown  by  the  petition  that  the  amount  here  sued  for  is  but  a 
small  part  of  the  loss  actually  sustained  by  the  Goodlander  Mill  Com- 
pany in  the  destruction  of  its  property  by  the  fire  alleged  to  have  been 
caused  by  the  defendant's  negligence. ^^ 

Before  Caldwell  and  Sanborn,  Circuit  Judges,  and  Thayer,  Dis- 
trict Judge. 

Caldwell,  Circuit  Judge,  delivered  the  opinion  of  the  court. 

The  circuit  court  sustained  the  demurrer  to  the  complaint  on  the 
ground  that  the  plaintiff  could  not  maintain  the  action  in  its  own 
name,  and  the  correctness  of  this  ruling  is  the  only  question  we  find 
it  necessary  to  consider. 

When  an  insurance  company  pays  to  the  assured  the  amount  of  a 
loss  of  the  property  insured,  it  is  subrogated,  in  a  corresponding 
amount,  to  the  assured's  right  of  action  against  any  other  person  re- 
sponsible for  the  loss.  This  right  of  the  insurer  against  such  other 
person  is  derived  from  the  assured  alone,  and  can  be  enforced  in  his 
right  only.  At  common  law  it  must  be  asserted  in  the  name  of  the 
assured.  In  a  court  of  equity  or  of  admiralty,  or  under  the  modern 
codes  of  practice,  it  may  be  asserted  by  the  insurance  company  in 
its  own  name,  when  it  has  paid  the  insured  the  full  value  of  the  prop- 
erty destroyed.  St.  Louis,  I.  M.  &  S.  Ry.  Co.  v.  Commercial  Union 
Ins.  Co.,  139  U.  S.  223,  235,  11  Sup.  Ct.  554,  35  L.  Ed.  154,  and  cases 
cited ;  Marine  Ins.  Co.  v.  St.  Louis,  I.  M.  &  S.  Ry.  Co.  (C.  C.)  41 
Fed.  643.    But  the  rule  seems  to  be  well  settled  that,  when  the  value 

18  The  statement  of  facts  is  abridged  from  the  original  report 


312  RIGHTS    UNDER   THE    POLICY 

of  the  property  exceeds  the  insurance  money  paid,  the  suit  must  be 
brought  in  the  name  of  the  assured.     /Etna  Ins.  Co.  v.  Hannibal  & 
St.  J.  R.  Co.,  3  Dill.  1,  Fed.  Cas.  No.  96;  Assurance  Co.  v.  Sainsbury, 
3  Doug.  245 ;   Insurance  Co.  v.  Bosher,  39  Me.  253,  63  Am.  Dec.  618 ; 
Hart  V.  Railroad  Corp.,  13  Mete.  (Mass.)  99,  46  Am_.  Dec.  719;^  Con- 
necticut, etc.,  Ins.  Co.  v.  New  York,  etc.,  R.  Co.,  25  Conn.    265,  278, 
65  Am.  Dec.  571;    Insurance  Co.  v.  Frost,  37  111.  333;    Fland.  Ins. 
pp.  360,  481,  591 ;   Marine  Ins.  Co.  v.  St.  Louis,  I.  M.  &  S.  Ry.  Co., 
supra.     In  such  an  action  the  assured  may  recover  the  full  value  of 
the  property  from  the  wrongdoer,  but  as  to  the  amount  paid  him  by 
the  insurance  company,  he  becomes  a  trustee ;   and  the  defendant  will 
not  be  permitted  to  plead  a  release  of  the  cause  of  action  from  the 
assured,  or  to  set  up  as  a  defense  the  insurance  company's  payment 
of  its  part  of  the  loss.     Hart  v.  Railroad  Corp.,  supra ;    Hall  v.  Rail- 
road Co.,  13  ^^'all.  367,  20  L.  Ed.  594.     In  support  of  this  rule  it  is 
commonly  said  that  the  wrongful  act  is  single  and  indivisible  and  can 
give  rise  to  but  one  liability.     "If,"  says  Judge  Dillon  in  ^tna  Ins. 
Co.  v.  Hannibal  &  St.  J.  R.  Co.,  supra,  "one  insurer  may  sue,  then, 
if  there  are  a  dozen,  each  may  sue ;   and,  if  the  aggregate  amount  of 
all  the  policies  falls  short  of  the  actual  loss,  the  owner  could  sue  for 
the  balance.     This  is  not  permitted,  and  so  it  was  held  nearly  a  hun- 
dred years  ago,  in  a  case  whose  authority  has  been  recognized  ever 
since  both  in  Great  Britain  and  in  this  country." 

The  learned  counsel  for  the  plaintiff  in  error  challenges  the  sound- 
ness of  this  rule,  and  contends  with  much  force  that  the  rule  that  a 
wrongdoer  who  injures  many  people  by  the  same  act  is  liable  to  each 
person  separately  for  the  injury  done  to  each  should  be  applied  to 
this  class  of  cases.  It  is  said,  "The  convenience  of  the  innocent  in- 
jured man  to  sue  and  get  reparation  is  paramovmt  to  the  inconvenience 
of  the  wrongdoer  who  suffers  from  a  multiplicity  of  suitors."  It 
would  serve  no  useful  purpose  to  repeat  here  the  reasoning  of  the 
courts  in  answer  to  this  contention.  The  subject  is  fully  gone  over  in 
the  authorities  we  have  cited. 

The  rule  that,  where  the  property  exceeds  in  value  the  amount  in- 
sured, the  suit  must  be  in  the  name  of  the  assured,  seems  not  to  rest 
so  much  upon  the  necessity  or  desirability  of  exempting  the  wrong- 
doer from  a  multiplicity  of  suits  as  upon  the  peculiar  nature  of  the 
relation  existing  between  the  assured  and  the  insurer.  It  is  held  by 
the  supreme  judicial  court  of  Massachusetts  (Hart  v.  Railroad  Corp., 
supra)  and  by  the  supreme  court  of  the  United  States  (Hall  v.  Rail- 
road Co.,  supra)  that  in  respect  to  the  ownership  of  the  property, 
and  the  risk  incident  thereto,  the  owner  and  the  insurer  are  consid- 
ered but  one  person,  having  together  the  beneficial  right  to  the  indem- 
nity due  from  one  who  is  responsible  for  its  loss.  When  the  insurer 
pays  the  assured  the  full  value  of  the  property  destroyed,  the  insurer 
may  maintain  an  action  in  his  own  name  against  one  responsible  for 
its  loss,  because,  by  operation  of  law,  the  whole  beneficial  right  to 


SUBROGATION  313 

indemnity  from  the  wrongdoer  has  been  vested  in  the  insurer.  He  is 
therefore  the  real  and  only  party  in  interest,  and,  under  the  Code,  the 
proper  party  to  bring  the  suit.  But,  when  the  value  of  the  property 
destroyed  exceeds  the  insurance  money  paid,  the  beneficial  right  to 
indemnity  from  the  wrongdoer  remains  in  the  assured,  for  the  whole 
value  of  the  property, — for  the  unpaid  balance  due  to  himself,  as 
well  as  for  the  amount  paid  by  the  insurer,  as  to  which  last  sum  he 
is  chargeable  as  a  trustee. 

It  will  be  observed  that  in  this  case  10  other  insurance  companies 
have  issued  separate  policies  on  the  property,  and  that  the  aggregate 
amount  of  all  the  policies  only  equals  three-fourths  of  the  value  of 
the  property,  and  that  the  assured  has  brought  suit  against  the  oil 
company  for  the  value  of  the  property  destroyed.  If  the  contention 
of  the  plaintiff  in  error  is  sound,  then  the  11  insurance  companies 
and  the  assured  can  each  maintain  a  separate  action  against  the  al- 
leged wrongdoer.  We  are  cited  to  no  case  which  supports  this  con- 
tention, and  we  do  not  think  one  can  be  found.  The  allegation  of 
the  complaint  that  the  mill  company,  in  its  action  against  the  oil  com- 
pany, makes  no  claim  for  the  amount  of  insurance  paid  by  the  plain- 
tiff, does  not  alter  the  case ;  for,  if  this  was  done  at  the  request  of 
the  plaintiff,  it  cannot  complain,  and  if  it  was  done  by  the  mill  com- 
pany on  its  own  motion,  and  it  recovers  in  the  action,  it  will  hold  an 
amount  of  the  recovery  equal  to  the  insurance  paid  as  trustee  for 
the  plaintiff. 

The  judgment  of  the  circuit  court  is  affirmed.^® 

19  Compare  Atchison,  T.  &  S.  F.  R.  Co.  v.  Home  Ins.  Co.,  59  Kan.  432,  53 
Pac.  459  (1898). 


314  THE  STANDARD  FIRE   POLICX 


THE  STANDARD  FIRE  POLICY* 
I.  The  General  Rule  of  Construction  * 


CLAY  V.  PHCENIX  INS.  CO. 
(Supreme  Court  of  Georgia,  1895.    97  Ga.  44,  25  S.  E.  417.) 

Action  by  C.  C.  Clay  against  the  Phoenix  Insurance  Company.  From 
a  judgment  of  nonsuit,  plaintiff  brings  error. 

Atkinson,  js  *  *  *  Courts  are  not  at  liberty  to  arbitrarily  dis- 
regard reasonable  limitations  imposed  upon  the  liability  of  insurance 
companies  under  policies  of  insurance  by  stipulations  and  conditions 
therein  expressed ;  but  in  the  construction  of  such  poHcies  and  such 
conditions  and  stipulations  the  courts  will  look  through  the  whole  con- 
tract to  the  real  intention  of  the  parties  at  the  time  of  the  execution 
of  the  instrument,  and  give  to  it  such  construction  as  will  impute  to 
them  a  reasonable  intendment,  and  such  construction  as  will  relieve 
against  forfeitures,  if  that  construction  be  consistent  with  the  general 
intent  expressed  in  the  policy.  Courts  will  presume,  when  policies 
of  insurance  are  issued  by  insurance  companies,  and  they  accept  pre- 
miums paid  therefor,  that  such  policies  are  issued  in  good  faith,  and 
with  the  design,  upon  the  consideration  received,  to  afford  to  the  as- 
sured reasonable  immunity  in  case  of  loss.  If  the  condition  be  so 
repugnant  to  the  stating  clause  of  insurance  as  that  both  cannot  stand 
together,  courts  should  disregard  the  condition,  upon  the  idea  that 
it  will  not  be  presumed  that  the  insurance  company  issues  a  policy  of 
insurance  with  an  intention  never  to  become  liable  thereon.  If  the 
condition  impose  upon  the  assured  a  duty  with  respect  to  the  thing 
insured,  that  duty  must  be  performed,  however  slightly  material  to 
the  interest  of  the  insurer  its  performance  may  appear  to  be.  If  the 
condition  or  stipulation  impose  duties  which  are  wholly  immaterial, 
or  with  respect  to  matters  which  are  wholly  irrelevant,  the  right  of 
the  assured  would  not  be  aft'ected  by  a  nonperformance. 

There  is  no  greater  sanctity  and  no  more  mystery  about  a  contract 

1  The  New  York  standard  form  of  fire  policy  has  been  adopted  in  New 
York,  Connecticut,  Louisiana,  Missouri,  New  Jersey,  North  Carolina.  North 
Dakota,  Pennsylvania,  Rhode  Island,  and  South  Dakota,  though  there  are 
minor  differences  in  some  instances.  In  Maine,  Massachusetts,  Minnesota, 
Michigan,  New  Hampshire,  and  Wisconsin  standard  forms  have  been  adopt- 
ed differing  in  some  particulars  from  the  New  York  form.  In  other  states, 
the  New  York  standard  form  is  generally  used. 

2  For  discussion  of  principles,  see  Vance  on  Insurance.  §§  151,  152.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  1,  p.  627  et  seq. 

3  Part  of  the  opinion  is  omitted. 


THE    GENERAL    RULE    OF   CONSTRUCTION  315 

of  insurance  than  any  other.  The  same  rules  of  construction  apply 
to  it  as  to  other  contracts,  and  the  true  rule  for  their  interpretation 
may  be  stated  to  be  that  stipulations  and  conditions  in  policies  of  in- 
surance, like  those  in  all  other  contracts,  are  to  have  a  reasonable  in- 
tendment, and  are  to  be  so  construed,  if  possible,  as  to  avoid  forfeit- 
ures, and  to  advance  the  beneficial  purposes  intended  to  be  accom- 
plished.    *     *     *     Reversed. 


JOHN  DAVIS  &  CO.  v.  INSURANCE  CO.  OF  NORTH 

AMERICA. 

(Supreme  Court  of  Michigan,  1S97.     115  Mich.  .382,  73  N.  W.  303.) 

Action  by  John  Davis  &  Co.,  a  corporation,  against  the  Insurance 
Company  of  North  America,  to  recover  under  a  policy  of  insurance 
issued  by  defendant,  for  the  value  of  goods  destroyed  by  fire.  From 
a  judgment  in  favor  of  plaintiff,  but  for  a  less  sum  than  that  demand- 
ed, both  parties  bring  error. 

Montgomery,  J.*  This  is  an  action  on  a  fire  insurance  policy.  The 
plaintiff  was  a  dealer  in  grocers'  supplies  at  45  Larned  street,  Detroit, 
occupying  a  brick  building,  and  held  a  policy  issued  by  the  defendant, 
and  covering  the  stock  in  trade,  in  the  sum  of  $2,000.  There  was 
$6,000  concurrent  insurance.  On  the  6th  day  of  November,  1895,  a 
boiler  exploded  in  the  basement  of  an  adjoining  building,  occupied  by 
the  Detroit  Journal,  and  both  buildings  fell  in.  A  fire  ensued  in  No.  47. 
but  none  of  the  goods  in  No.  45  were  actually  consumed  by  fire.  There 
were  saved  from  the  wreck  goods  which  in  their  perfect  state  were 
worth  $996.  It  was  shown  that  goods  were  damaged  by  water  poured 
upon  them  for  the  purpose  of  extinguishing  fire.     *     *     * 

The  clauses  of  the  policy  under  which  the  questions  presented  arise 
are  as  follows :  "This  company  shall  not  be  liable  for  loss  caused  di- 
rectly or  indirectly  by  invasion,  insurrection,  riot,  civil  war,  or  com- 
motion, or  military  or  usurped  power,  or  by  order  of  any  civil  au- 
thority, or  by  theft,  or  by  neglect  of  the  insured  to  use  all  reasonable 
means  to  save  and  preserve  the  property  at  and  after  a  fire,  or  when 
the  property  is  endangered  by  fire  in  neighboring  premises,  or  (unless 
fire  ensues,  and  in  that  event  for  the  damage  by  fire  only)  by  explosion 
of  any  kind,  or  lightning,  but  liability  for  direct  damages  by  lightning 
may  be  assumed  by  specific  agreement  hereon."  "If  a  building,  or 
any  part  thereof,  fall,  except  as  the  result  of  fire,  all  insurance  by  this 
policy  on  such  building,  or  its  contents  shall  immediately  cease." 

It  is  contended  by  the  defendant  that  the  policy  terminated  imme- 
diately upon  the  fall  of  the  building.  It  may  be  conceded  that,  if 
the  last  clause  above  quoted  stood  alone,  such  would  be  its  effect. 
Huck  V.  Insurance  Co.,  127  Mass.  306,  34  Am.  Rep.  373.     But  this 

4  Part  of  the  opinion  is  omitted. 


316  THE  STANDARD  FIRE  POLICY 

clause  is  preceded  by  a  specific  clause  which  governs  in  case  of  ex- 
plosion. The  case  is  directly  ruled  by  Dows  v.  Insurance  Co.,  127 
Mass.  346,  34  Am.  Rep.  384.  The  policy  in  that  case  contained  sub- 
stantially the  same  provision  as  in  the  present.  Referring  to  the  last- 
quoted  provision,  the  court  said:  "It  appears  to  us  to  have  had  in  view 
the  case  of  a  building  falling  by  inherent  defect  or  of  withdrawal  of 
support,  as  by  digging  away  the  underlying  or  adjoining  soil.  It  might 
perhaps  include  the  case  of  a  building  thrown  down  by  a  storm  or 
flood  or  earthquake,  but  it  would  be  construing  the  case  too  liberally 
in  favor  of  the  insurers  to  hold  it  to  include  the  case  of  the  destruc- 
tion of  a  building  by  an  explosion  within  the  building  itself,  and  of 
a  fire  immediately  ensuing  on  and  connected  with  such  explosion,  the 
measure  of  the  liability  for  which  had  been  carefully  and  previously 
defined  in  the  previous  provisions  of  the  policy." 

We  do  not  overlook  the  claim  of  defendant's  counsel  that  the  stand- 
ard policy  is  in  a  form  prescribed  by  state  authority,  and  should  no 
longer  be  subject  to  the  rule  that  such  contracts  are  to  be  construed 
most  favorably  to  the  insured.  We  need  not  determine  how  far  this 
rule  of  construction  should  be  held  modified  by  the  conditions  stated. 
The  terms  employed  in  this  policy  have  been  in  previous  use  in  in- 
surance contracts,  and,  as  we  have  seen,  had  had  a  judicial  construc- 
tion. It  is  to  be  assumed  that  these  terms  were  used  in  this  policy  in 
the  sense  in  which  they  were  previously  used  and  defined.  The  same 
consideration  answers  defendant's  suggestion  that  the  words  "damage 
by  fire"  should  be  limited  to  loss  by  actual  burning.  It  is  conceded 
that,  in  general,  the  words  "loss  by  fire"  include  loss  by  water  thrown 
upon  the  property,  to  prevent  its  destruction  by  fire;  and  it  is  but 
fair  to  assume  that  the  language  was  employed  in  the  statutory  policy 
in  view  of  its  previously  accepted  interpretation.     *     *     *     Affirmed.^ 


HORTON  V.  HOME  INS.  CO. 

(Supreme  Court  of  North  Carolina,   1S9S.     122  N.  C.  498,  29  S.  E.  944,  G5 

Am.    St.   Rep.   717.) 

Action  by  George  P.  Horton  and  others  against  the  Home  Insur- 
ance Company,    From  a  judgment  for  plaintifi^s,  both  parties  appealed. 

Douglas,  j,6  *  *  *  f^g  counsel  for  the  defendant  called  the 
attention  of  the  court  to  section  6  of  chapter  299  of  the  Laws  of  1893, 
wherein  it  is  provided  that  "the  standard  fire  insurance  policy,  as  pre- 
scribed and  set  out  in  section  121  of  the  insurance  law  of  New  York,. 

5  Effect  of  collapse  of  building  in  general,  see  Vance  on  Insurance,  §  172 ; 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  pp.  1609-1611;  vol.  4,  p.  3029, 
The  "falling  building"  clause  is  not  contained  in  the  standard  form  of  pol- 
icy adopted  m  Maine,  Massachusetts,  Minnesota,  and  New  Hampshire.  What 
constitutes  loss  by  fire  in  general,  see,  post,  p.  361. 

6  Pare  of  the  opinion  is  omitted. 


THE    GENERAL    RULE    OF   CONSTRUCTION  317 

shall  be  exclusively  used  in  this  state  by  all  fire  insurance  companies 
from  and  after  the  first  day  of  May,  1893,"  and  insisted  that  such  a 
policy  should  be  construed  in  accordance  with  the  decisions  of  the 
state  from  which  it  came.  Whatever  force  there  might  otherwise 
be  in  the  suggestion  is  fully  met  by  section  8  of  the  same  act,  which 
reads  as  follows :  "All  contracts  of  insurance,  the  application  for  which 
is  taken  within  this  state,  shall  be  deemed  to  have  been  made  within 
this  state,  and  subject  to  the  laws  thereof." 

In  the  determination  of  a  new  question,  the  decisions  of  other  states 
may  be  taken  as  precedents  to  guide  our  action,  but  can  never  be  au- 
thorities to  reverse  the  settled  ruling  of  our  courts.  These  two  sec- 
tions are  not  inconsistent,  and,  when  construed  together,  become  clear 
in  their  meaning.  The  policy  is  essentially  a  North  Carolina  contract, 
althought  the  form  thereof  may  have  been  borrowed  from  another  ju- 
risdiction. A  suit  of  homespun  is  none  the  less  a  native  production 
because  the  pattern  by  which  it  was  cut  came  from  another  state. 
It  was  deemed  best  to  have  a  uniform  policy,  which  would  eventually 
become  familiar  to  our  people,  and,  by  repeated  adjudications,  ac- 
quire a  settled  meaning.  The  New  York  form  was  selected  because 
it  had  been  adopted  by  the  largest  insurance  state  in  the  country,  and 
was  the  outgrowth  of  many  years  of  careful  and  efficient  state  super- 
vision. It  is  none  the  less  a  North  Carolina  contract,  solvable  under 
our  laws,  and  determinable  by  our  decisions.  The  judgment  below 
is  affirmed. 


WILD  RICE  LUMBER  CO.  v.  ROYAL  INS.  CO.  OE  LIVER- 
POOL. 

(Supreme  Court  of  Minnesota,  1906.    99  Minn.  190,  108  N.  W.  871.) 

Action  by  the  Wild  Rice  Lumber  Company  against  the  Royal  In- 
surance Company  and  others.  There  was  a  judgment  for  plaintifl^ 
for  less  than  the  amount  claimed,  and  both  parties  appeal. 

Elliott,  J.'^  The  Wild  Rice  Lumber  Company  was  the  proprietor 
of  a  sawmill  and  lumber  yard  situated  in  the  village  of  Ada.  During 
the  year  1904  certain  insurance  companies  issued  policies  agreeing  to 
indemnify  the  lumber  company  from  loss  by  fire  upon  the  lumber  de- 
scribed therein.  The  policies  were  all  in  the  form  prescribed  by  chapter 
175,  p.  417,  Gen.  Laws  1895,  as  amended  by  chapter  254,  p.  468,  Gen. 
Laws  1897.  So  far  as  at  present  material,  the  policies  were  identical 
in  form  and  contained  the  following  description  of  the  property  in- 
sured. "On  lumber  (pickets,  posts,  timber,  lath,  and  shingles,  if  any) 
owned  by  Wild  Rice  Lumber  Company  or  held  in  trust  or  on  com- 
mission, or  sold,  but  not  delivered,  piled  on  blocks  [numbers  here  in- 

7  Part  of  the  opinion  is  omitted. 


318  THE  STANDARD   FIRE  POLICY 

sertedl],  and  in  streets  and  alleys  adjacent  to  or  connecting-  with  said 
blocks,  in  Ada,  Minn." 

Each  policy  also  contained  the  following  statement,  known  as  the 
"space  clause" :  "In  consideration  of  the  issuance  of  this  policy  and 
the  basis  upon  which  the  rate  of  premium  is  fixed,  the  assured  war- 
rants and  agrees  that  a  continuous  clear  space  of  200  feet  shall  here- 
after be  maintained  between  the  property  hereby  insured  and  any  wood- 
working or  manufacturing  establishment,  and  that  said  space  shall  not 
be  used  for  handling  or  piling  lumber  thereon  for  temporary  purposes, 
tramways  upon  which  lumber  is  not  piled,  alone  excepted.  But  this 
warranty  shall  not  be  construed  to  prohibit  loading  or  unloading  with- 
in, nor  the  transportation  of  lumber  or  timber  products  across  such 
clear  space;  it  being  specially  understood  and  agreed  by  the  assured 
that  any  violation  of  this  warranty  shall  render  this  policy  null  and 
void."     *     *     * 

On  August  15,  1904,  there  was  a  loss  by  fire  on  lumber  belonging 
to  the  Wild  Rice  Lumber  Company  to  the  amount  of  $4,064.  Of  this 
amount,  $3,818  was  on  lumber  which  was  located  less  than  200  feet 
from  the  sawmill.  The  Home  Insurance  Company  paid  its  pro  rata 
share  of  the  loss,  but  all  the  other  companies  denied  liability  on  the 
grounds  (1)  that  the  lumber  destroyed  was  not  covered  by  the  policy, 
and  (2)  that  the  policy  had  ceased  to  be  in  force  at  the  time  of  the 
fire  because  of  a  breach  of  the  warranties  contained  in  the  space  clause. 
*     *     * 

The  trial  court  found  that  the  policies  were  in  force,  that  the  manner 
in  which  the  space  between  the  yard  and  the  mill  was  used  was  known 
to  the  company  before  the  policy  was  issued,  that  the  right  to  claim 
a  breach  of  warranty  had  been  waived,  and  that  the  policies  did  not 
cover  lumber  located  less  than  200  feet  from  the  mill.  Judgment  was 
ordered!  for  the  plaintiff  for  $233.94,  being  the  value  of  the  lumber 
which  was  beyond  the  200-foot  limit.     *     *     * 

If  the  insurance  companies  had  no  right  under  the  statute  to  require 
the  insured  to  warrant  the  maintenance  of  a  continuous  clear  space  of 
200  feet  between  the  insured  property  and  the  mill,  numerous  sub- 
sidiary questions  raised  and  elaborately  argued  by  counsel  are  elimi- 
nated The  lumber  company  contends  that  the  provision  injects  for- 
bidden conditions  into  the  standard  policy,  and  the  insurance  companies 
that  it  merely  determines  one  of  the  "conditions  of  insurance"  author- 
ized by  section  52,  c.  175,  p.  417,  Gen.  Laws  1895,  and  is  also  express- 
ly authorized  by  section  1,  subd.  2,  c.  254,  p.  468,  Gen.  Laws  1897. 

A  glance  at  the  history  of  the  standard  form  of  policy  makes  it 
very  clear  that  the  Legislature  of  this  state  intended  to  deprive  fire 
insurance  companies  of  the  right  to  add  to  or  change  the  terms  and 
conditions  of  the  prescribed  form.  The  right  to  make  such  changes 
and  additions  is  one  of  the  principal  distinguishing  characteristics  of 
the  two  classes  of  standard  forms.  The  Massachusetts  and  New  York 
standard  policies  went  into  effect  about  the  same  time  and  have  formed 


THE    GENERAL    RULE    OF   CONSTRUCTION  319 

the  models  for  the  legislation  in  other  states.  Both  states  were  seeking 
uniformity  of  insurance  contracts,  but  Massachusetts  did  not  attempt 
to  deprive  the  parties  of  the  liberty  of  making  their  own  contracts. 
It  merely  adopted  a  model  which  the  parties  were  at  liberty  to  modify 
at  will.  But  New  York  went  further  and  determined  the  form  which 
all  must  use  with  the  privilege  of  adopting  certain  prescribed  clauses 
to  cover  particular  conditions. 

The  Minnesota  act  of  1889  imposed  upon  the  insurance  commissioner 
the  duty  of  preparing  a  standard  form  of  policy  which  should  be 
obligatory  after  that  year.  The  New  York  form  was  prepared  and 
went  into  use  but  the  act  was  declared  unconstitutional  because  it  at- 
tempted to  delegate  legislative  powers  to  the  insurance  commissioner. 
In  1895  the  Legislature  adopted  the  Massachusetts  form  with  such 
moditications  as  were  necessary  to  avoid  conflict  with  the  valued  policy 
law.  Section  53  provided  that  "a  company  may  write  upon  the  margin 
or  across  the  face  of  the  policy,  or  write  or  print  in  type  not  smaller 
than  long  primer  upon  separate  slips  or  riders  to  be  attached  thereto 
provisions  adding  to  or  modifying  those  contained  in  the  standard 
form." 

The  insurance  companies  then  adopted  a  general  rider  which  em- 
braced substantially  all  the  provisions  of  the  New  York  form.  But 
the  Legislature  of  1897,  amending  section  53,  c.  175,  p.  417,  Gen. 
Laws  1895,  in  express  terms  prohibited  the  making  of  any  changes 
except  such  as  were  specifically  enumerated  in  the  statute.  The  con- 
clusion is  inevitable  that  the  Legislature  intended  to  deprive  the  parties 
of  the  right  to  make  insurance  contracts  in  any  form  except  as  pre- 
scribed by  the  statute.  The  statute  (section  53,  c.  254,  p.  468,  Gen. 
Laws  1897)  provides  that : 

"No  fire  insurance  company  shall  issue  fire  insurance  policies  on 
property  in  this  state  other  than  those  of  the  standard  form  herein 
set  forth,  except  as  follows,  to  wit : 

"Fifst.  A  company  may  print  on  or  in  its  policies  its  name,  location 
and  date  of  incorporation,  the  amount  of  its  paid  up  capital  stock,  the 
names  of  its  officers  and  agents,  the  number  and  d!ate  of  the  policy, 
and  if  it  is  issued  through  an  agent,  the  words,  'this  policy  shall  not  be 
valid  until  countersigned  by  the  duly  authorized  agent  of  the  company 
at .' 

"Second.  A  company  may  print  or  use  in  its  policies  printed  forms 
of  description  and  specification  of  the  property  insured,  including  per- 
mits for  the  use  of  electricity,  gasoline  or  the  storage  of  other  hazard- 
ous or  dangerous  material  or  product  also  for  repairs  or  improve- 
ments for  the  operation  or  ceasing  to  operate  and  for  the  maintenance 
of  sprinkling  or  other  improvements. 

"Third!.  A  company  insuring  against  damage  by  lightning  may  print 
in  the  clause  enumerating  the  perils  insured  against,  the  additional 
words :   'Also  any  damage  by  lightning  whether  fire  ensues  or  not'  and 


320  THE   STANDARD   FIRE   POLICY 

in  the  clause  providing  for  apportionment  of  loss  in  case  of  other  in- 
surance the  words,  'whether  by  fire,  lightning  or  both.' 

"Fourth.  A  company  incorporated  or  formed  in  the  state  may  print 
in  its  policies  any  provisions  which  it  is  authorized  or  required  by  law 
to  insert  therein ;  and  any  company  not  incorporated  or  formed  in  this 
state  may,  with  the  approval  of  the  insurance  commissioner,  so  print 
any  provision  required  by  its  charter  or  deed  of  settlement  or  by  the 
laws  of  its  own  state  or  country,  not  contrary  to  the  laws  of  this  state. 

"Fifth.  The  blanks  in  said  standard  form  may  be  filled  in  print  or  in 
writing. 

"Sixth.  A  company  may  print  upon  policies  issued  in  compliance 
with  the  preceding  provisions  of  this  section,  the  words  'Minnesota 
Standard  Policy.' 

"Seventh.  No  provision  shall  be  attached  to  or  included  in  said  pol- 
icy limiting  the  amount  to  be  paid  in  case  of  total  loss  on  buildings  to 
less  than  the  amount  of  insurance  on  the  same." 

The  prescribed  form  with  the  changes  thus  authorized  is  the  only 
form  of  fire  insurance  contract  authorized  by  the  laws  of  the  state. 

But  the  insurance  companies  contend  that  the  space  clause  is  in  com- 
mon use  and  is  authorized  by  the  language  of  section  52,  c.  175,  p. 
417,  Gen.  Laws  1895.  The  authorities  cited  are,  with  the  exception 
of  one  from  an  intermediate  New  York  court,  from  states  which  have 
no  standard  form,  and  common  use  can,  of  course,  confer  no  rights  in 
the  face  of  the  statute.  The  act  of  1895,  as  we  have  seen,  permitted 
the  contract  to  be  modified  by  riders,  subject  to  the  prohibitions  con- 
tained in  section  25  (page  401)  ;  but  it  required  the  policy  to  contain 
the  entire  contract.  Section  52  provided  that  "the  conditions  of  in- 
surance shall  be  stated  in  full  and  neither  the  application  of  the  in- 
sured nor  the  by-laws  of  the  company  shall  be  considered  as  warranty 
except  they  be  incorporated  in  full  in  the  policy."  Coleman  v.  Retail 
L.  Ins.  Ass'n,  17  Minn.  31,  79  N.  W.  588;  KoUitz  v.  Eq.  Mut.  L. 
Ins.  Co.,  92  Minn.  234,  99  N.  W.  892. 

This  section  was  not  repealed  by  the  amendment  of  1897,  but  it  can- 
not be  used  to  restrict  the  express  requirement  of  the  amendatory  act. 
Under  the  act  of  1895,  the  conditions  of  insurance  were  required  to 
be  stated  in  full  in  the  policy  and  this  included  such  as  were  prescribed 
by  the  statutory  form  and  also  such  additions  and  modifications  as 
were  made  by  the  parties.  Changes  and  additions  are  now  forbidden 
except  as  specifically  permitted,  but  the  policy  must  still  contain  all 
the  conditions  of  insurance.  Nor  is  the  space  clause  authorized  by  sub- 
division 2  of  section  53  as  amended.  To  hold  that  its  provisions  are 
included  within  "the  other  improvements"  there  referred  to  would  be 
to  give  the  words  a  strained  and  unnatural  construction. 

The  parties  were  not  authorized!  to  insert  in  the  policy  a  provision 
not  contained  in  the  statutory  form  or  expressly  authorized  by  the  stat- 
ute, whereby  the  insured  warranted  the  maintenance  of  certain  condi- 
tions about  the  premises.    But  there  seems  to  be  no  reason  why  refer- 


EFFECT  OF  TEMPORARY  BREACH  OF  CONDITION        321 

ence  may  not  be  made  to  the  added  clause  for  the  description  and 
identification  of  the  property  which  was  intended  to  be  insured.  The 
policy  must  contain  a  complete  description  of  the  property  and  the 
statute  authorizes  the  company  to  print  on  its  policy  forms  of  de- 
scription and  specification  of  the  property  insured.  In  connection  with 
property  of  this  character,  location  may  be  an  essential  element  of 
description.     *     *     * 

The  warranty  may  be  held  ineffective,  but  the  lans^uage  clearly  shows 
that  the  parties  did  not  understand  that  lumber  piled  within  200  feet 
of  the  mill  was  insured.  The  insured,  under  the  decision  of  the  trial 
court,  got  exactly  wdiat  it  paid  for. 

The  judgment  of  the  trial  court  is  affirmed  on  both  appeals. 


II.  Effect  of  Temporary  Breach  of  Condition  ' 


HINCKLEY  V.  GERMANIA  FIRE  INS.  CO. 

(Supreme  Judicial  Court  of  Massachusetts,  1885.     140  Mass.  38,  1  N,  E.  737, 

54  Am.  Rep.  445.) 

This  was  an  action  by  Edwin  R.  Hinckley  against  the  Germania 
Fire  Insurance  Company  upon  a  policy  of  insurance  against  fire  upon 
a  pool  table  and  other  saloon  fixtures.  At  the  trial  in  the  superior 
court  a  verdict  was  ordered  for  the  defendant,  and  the  case  reported 
for  the  consideration  of  the  supreme  court. 

C.  Allen,  J.^  The  report  does  not  state  the  grounds  upon  which 
the  ruling  rested,  that  the  plaintifif  was  not  entitled  to  recover.  The 
defendants,  in  their  brief,  rely  on  various  objections,  which  we  have 
considered.     *     *     * 

It  is  then  urged  that,  after  the  license  had  expired,  the  plaintiff  kept 
the  insured  property,  in  violation  of  law,  from  May  1,  1883.  till  the 
last  week  in  June,  1883.  The  policy  was  dated  March  15,  1883,  and 
the  license  then  existing  expired  May  1,  1883.  The  fire  occurred  on 
August  6,  1883,  and  it  was  conceded  that  there  was  no  illegal  use  of 
the  property  after  the  last  week  of  the  preceding  June,  at  which  time 
the  plaintiff  ascertained  that  his  license  would  not  be  renewed.  The 
defendants  rest  their  objection  on  two  grounds:  First,  that  the  ille- 
gality and  criminality  of  the  plaintiff's  act  in  respect  to  the  injured 
property  vitiates  the  policy  by  operation  of  law,  independently  of  any 

8  For  discussion  of  principles,  see  Vance  on  Insurance,  §  153.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  3,  p.  1883. 

»  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 
Cooley  Ins. — 21 


322  THE  STANDARD   FIRE   POLICY 

express  provisions  contained  in  the  policy ;  and,  secondly,  that  under 
a  provision  of  the  policy  the  right  to  recover  was  taken  away. 

The  authorities  cited  in  support  of  the  first  proposition  do  not  sup- 
port it.  In  Kelly  v.  Home  Ins.  Co.,  97  Mass.  288,  the  policy  was  on 
intoxicating  liquors,  which  at  the  time  of  the  insurance,  and  there- 
after to  the  time  of  the  loss,  were  intended  for  sale  in  violation  of 
law.  The  policy  never  attached.  There  was  never  a  moment  when 
the  liquors  were  not  illegally  kept ;  and  all  that  the  case  decides  is  that 
goods  so  kept  at  the  time  when  the  policy  issued,  or  at  the  time  of  the 
loss,  cannot  be  the  subject  of  a  valid  insurance.  In  Johnson  v.  Union 
Ins.  Co.,  127  ]\Iass.  555,  the  facts  were  similar.  The  policy  was  on 
billiard  tables,  balls,  cues,  etc.,  kept  without  a  license  at  the  time  the 
policy  was  issued,  as  well  as  at  the  time  of  the  loss. 

The  ground  of  the  decision  in  both  of  the  above  cases  is  stated  to 
be  "that  the  object  of  the  assured  in  obtaining  the  policy  was  to  make 
their  illegal  business  safe  and  profitable ;  and  that,  the  direct  and 
immediate  purpose  of  the  contract  of  insurance  being  to  protect  and 
encourage  an  unlawful  traffic,  the  contract  was  illegal  and  void,  and 
the  policy  never  attached."  The  same  facts  existed  in  Lawrence  v. 
National  Ins.  Co.,  127  Mass.  557,  note.  In  Cunard  v.  Hyde,  2  El. 
&  El.  1,  the  cargo  which  was  the  subject  of  insurance  was  partly 
loaded  on  deck,  in  violation  of  law,  and  while  in  that  condition  was 
totally  lost. 

In  the  present  case,  the  plaintifif  had  a  license  at  the  time  when  the 
policy  issued,  and  the  policy,  therefore,  was  valid  when  obtained.  If 
it  be  assumed  without  discussion  that  the  policy  would  cease  to  be  op- 
erative during  the  time  when  the  property  was  kept  in  use  without  a 
license,  the  question  remains  whether  such  temporary  illegal  use  of 
the  property  has  the  effect  to  avoid  the  policy  altogether,  or  merely 
to  suspend  it  during  the  continuance  of  such  illegal  use.  There  is 
nothing  in  the  case  to  show  that  it  was  proved,  as  a  matter  of  fact, 
that  the  plaintiff,  at  the  time  of  taking  out  the  policy,  intended  to 
make  it  cover  any  illegal  use  of  the  property.  He  may  have  expected 
to  get  his  license  renewed ;  or,  failing  in  that,  he  may  have  intended 
to  close  the  place  where  the  property  was  used,  as,  according  to  his 
own  testimony,  in  point  of  fact  he  did.  Under  this  state  of  facts,  we 
are  of  opinion  that  the  temporary  use  of  the  property  without  a  li- 
cense, if  uncontemplated  at  the  time  of  taking  out  the  policy,  would 
not  of  itself,  and  as  a  matter  of  law,  render  the  policy  void  during 
the  whole  of  the  rest  of  the  time  which  it  was  to  run.  If  there  were 
any  special  or  peculiar  reasons  why  such  absolute  invalidity  should 
be  declared,  they  should  be  made  to  appear.  In  the  absence  of  such 
reasons,  such  temporary  and  uncontemplated  illegal  use  of  the  prop- 
erty should  not  be  visited  with  so  severe  a  penalty  as  the  absolute 
avoidance  of  the  policy.  It  does  not  appear  that  the  defendants  were 
or  would  be  in  any  way  injuriously  affected  thereby  after  such  illegal 
use  had  ceased.     They  have  the  benefit  of  the  temporary  suspension 


EFFECT   OF   TEMPOKARY    BREACH    OF   CONDITION  323 

of  the  risk,  without  any  rebate  of  the  premium.  There  is  no  hard- 
ship to  the  defendants  in  requiring  them  to  show  an  actual  injury, 
or  else  to  avail  themselves  of  the  clause  in  the  policy  giving  them  a 
right  to  cancel  it  upon  notice,  and  a  return  of  a  ratable  proportion  of 
the  premium. 

There  is  no  rule  of  law  preventing  the  revival  of  a  policy  of  insur- 
ance after  a  temporary  suspension.  "The  doctrine  that  the  risk  may 
be  suspended,  and  again  revive,  without  an  express  provision  for  the 
purpose,  seems  to  be  within  the  strictest  judicial  principles."  1  Phil. 
Ins.  §  975.  Accordingly,  temporary  unseaworthiness,  if  the  ship  has 
become  seaworthy  again,  will  not  defeat  the  policy.  1  Phil.  Ins.  §  730. 
So  as  to  other  stipulations ;  as,  e.  g.,  that  of  neutral  character  and 
conduct.  Id.  §  975.  And  in  Worthington  v.  Bearse,  12  Allen,  382, 
90  Am.  Dec.  152,  it  was  held,  on  great  consideration  by  this  court, 
that  if  the  assured  in  a  marine  policy  temporarily  parts  with  his  in- 
terest in  the  property  insured,  and  afterwards  buys  it  in  again,  the 
policy  will  revive,  if  there  are  no  express  provisions  making  it  void, 
and  there  is  no  increase  of  risk.  As  between  the  insurer  and  the  as- 
sured, there  is  no  reason  why  the  former  should  be  allowed  to  avail 
himself  of  a  temporary  illegal  use  like  that  which  existed  in  the 
present  case,  unless  it  can  also  be  shown  that  the  subsequent  risk  was 
thereby  increased,  or  the  position  of  the  insurer  otherwise  injuriously 
affected.  And,  as  a  matter  of  general  policy,  it  does  not  seem  rea- 
sonable to  impose  upon  the  assured  so  severe  a  consequence  as  the 
forfeiture  of  his  policy,  in  addition  to  the  penalty  of  $100,  which  the 
legislature  have  considered  adequate  as  the  maximum  punishment  for 
his  offense  against  the  public.     Pub.  St.  c.  102,  §  111. 

It  is  further  contended  by  the  defendants  that,  however,  it  might  be 
under  the  general  rule  of  law,  the  policy  contained  a  provision  making 
it  void.  In  the  standard  form  of  policy  established  by  the  legislature, 
which  was  used  in  the  present  case,  the  matters  avoiding  a  policy  are 
enumerated.  Omitting  matters  not  here  material,  the  provision  is: 
"This  policy  shall  be  void  *  *  *  if  the  insured  shall  make  any  at- 
tempt to  defraud  the  company  either  before  or  after  the  loss ;  or  if 
gunpowder  or  other  articles  subject  to  legal  restrictions  shall  be  kept 
in  quantities  or  manner  different  from  those  allowed  or  prescribed  by 
law;  or  if  camphene,  benzine,  naphtha,  or  other  chemical  oil,  or  burn- 
ing fluids  shall  be  kept  or  used  by  the  insured  on  the  premises  insured, 
except  that  what  is  known  as  refined  petroleum,  kerosene,  or  coal  oil 
may  be  used  for  lighting." 

In  this  commonwealth,  under  the  statutes  for  the  regulation  of 
trade,  and  providing  for  licenses  and  municipal  regulation  of  police, 
there  are  a  great  many  articles  which,  in  a  certain  sense,  may  be  said 
to  be  "subject  to  legal  restriction."  Dogs,  fish,  nails,  commercial  fer- 
tilizers, hacks,  and  horses,  in  cities,  may  be  referred  to  as  examples. 
It  may  well  be  questioned  whether,  under  the  maxim  noscitur  a  sociis. 


324  THE  STANDARD   FIRE   POLICY 

the  clause  in  the  policy  above  quoted  ought  not  to  be  limited  in  its  ap- 
plication to  other  articles  of  a  character  similar  to  gunpowder,  the 
keeping  of  which  may  have  a  natural  tendency  to  increase  the  risk. 
It  would  be  rather  a  strained  construction  of  this  clause  to  hold  that 
a  policy  should  be  void  because  an  unlicensed  dog  was  kept  upon  the 
premises;  and  yet  such  a  dog,  being  subject  to  legal  restriction,  would 
be  kept  in  a  manner  different  from  that  allowed  by  law.  It  would 
not  be  sensible  to  give  to  these  words  the  broadest  construction  of 
which  they  are  susceptible. 

But,  irrespectively  of  this  consideration,  it  is  not  the  necessary  mean- 
ing of  the  word  "void,"  as  used  in  policies  of  insurance,  that  it  shall 
under  all  circumstances  imply  an  absolute  and  permanent  avoidance 
of  a  policy  which  had  once  begun  to  run ;  but  the  meaning  of  the 
word  is  sufficiently  satisfied  by  reading  it  as  void  or  inoperative  for 
the  time  being.  In  Phil.  Ins.  §  975,  it  is  said:  "After  it  (i.  e.,  the 
policy)  has  begun,  so  that  the  premium  is  become  due,  it  surely  is  but 
equitable  that  a  temporary  non-compliance  should  have  effect  only 
during  its  continuance.  To  carry  it  further  is  to  inflict  a  penalty  on 
the  assured,  and  decree  a  gratuity  to  the  insurer,  who  is  thus  permit- 
ted to  retain  the  whole  premium  when  he  has  merited  but  part  of  it. 
A  forfeiture  certainly  ought  not  to  be  extended  beyond  the  grounds 
on  which  it  is  incurred.  *  *  *  ^^d  there  does  not  appear  to  be 
any  good  reason  why,  in  the  absence  of  all  fraud  and  all  prejudice  to 
the  underwriter,  the  same  doctrine  should  not  be  applicable  to  express 
conditions  in  the  nature  of  warranties  or  conditions,  unless  by  the 
circumstances,  or  the  express  provisions  of  the  policy,  such  applica- 
tion is  excluded."  In  accordance  with  this  doctrine,  a  provision  in  a 
policy  that  it  should  be  void,  and  be  surrendered  to  the  directors  of 
the  company  to  be  canceled,  in  case  of  alienation  of  the  property  by 
sale  or  otherwise,  was  held  to  be  inoperative  for  the  time  being ;  and 
the  assured,  upon  acquiring  title  after  a  sale  of  the  property  by  him, 
was  held  entitled  to  recover.  Lane  v.  Maine  Ins.  Co.,  12  Me.  44,  28 
Am.  Dec.  150.  So  where  a  policy  provided  that  "in  case  of  any 
transfer  or  termination  of  the  interest  of  the  assured,  either  by  sale 
or  otherwise,  without  such  consent,  (i.  e.,  of  the  company,)  this  policy 
shall  from  thenceforth  be  void  and  of  no  effect,"  it  was  held  that 
after  such  sale  the  policy  revived  upon  the  assured  acquiring  again 
the  title,  and  holding  it  at  the  time  of  the  fire.  Power  v.  Ocean  Ins. 
Co.,  19  La.  28,  36  Am.  Dec.  665. 

The  same  rule  of  construction  has  been  applied  to  provisions  against 
other  insurance.  Obermeyer  v.  Globe  Ins.  Co.,  43  Mo.  573 ;  New 
England  Fire  &  Marine  Ins.  Co.  v.  Schettler,  38  111.  166;  Mitchell  v. 
Lycoming  Ins.  Co.,  51  Pa.  402.  The  court  in  Illinois  has  gone  so  far 
as  to  apply  it  also  to  a  provision  against  an  increase  of  risk,  which 
ceased  before  the  loss.  Schmidt  v.  Peoria  Ins.  Co.,  41  111.  295 ;  In- 
surance Co.  of  North  America  v.  McDowell,  50  111.  120,  129,  99  Am. 
Dec.  497.     Without  at  present  going  beyond  what  is  called  for  by 


THE    SUBJECT   OF   INSURANCE — LOCATION  325 

the  circumstances  of  the  present  case,  we  are  of  opinion  that,  assum- 
ing the  temporary  use  of  the  property  insured,  without  a  Hcense,  to 
come  within  the  prohibition  of  the  policy  in  the  clause  above  quoted 
as  to  gunpowder  or  other  articles  subject  to  legal  restriction,  yet  that 
clause  is  not  to  receive  such  a  construction  as  to  prevent  the  policy 
from  reviving  after  such  temporary  use  has  ceased.  *  *  *  New 
trial  granted.^" 


III.  The  Subject  of  Insurance — Location  ^* 


VILLAGE  OF  L'ANSE  v.  FIRE  ASS'N    OF  PHILADELPHIA. 

(Supreme  Court  of  Michigan,  1S99.     119  Mich.  427.  78  N.  W.  465,  43  L.  R,  A. 

8.38,  75  Am.  St.  Rep.  410.) 

Action  by  the  Village  of  L'Anse  against  the  Fire  Association  of 
Philadelphia.  There  was  a  judgment  directed  for  defendant,  and 
plaintiff  brings  error. 

Long,  J.  On  April  9,  1896,  the  defendant  issued  its  policy  of  in- 
surance to  the  plaintiff  for  the  term  of  one  year  from  April  19,  1896. 
The  policy  provides  that  the  association  does  "insure  village  of  L'Anse 
*  *  *  against  all  direct  loss  or  damages  by  fire,  except  as  herein- 
after provided,  to  an  amount  not  exceeding  $1,500,  to  the  following 
described  property,  while  located  and  contained  as  described  herein, 
and  not  elsewhere,  to  wit :  $400  on  the  two-story  frame,  shingled 
roof,  fire-engine  house,  situate  detached  70  feet,  in  the  village  of 
L'Anse,  Baraga  county,  ]\Iichigan ;  $700  on  steam  fire  engine  and 
heater  attached ;  $200  on  hose  and  hose  pipe ;  $300  on  hose  cart,  tools, 
and  machinery  not  enumerated, — all  contained  in  above-described 
building.  $1,500  other  concurrent  insurance  noted."  Then  follows 
the  usual  Michigan  form  of  standard  policy. 

On  May  9,  1896,  the  said  steam  fire  engine,  hose,  hose  pipe,  and 
hose  cart,  as  covered  by  the  policy,  were  burned  and  destroyed  by  fire. 
None  of  the  above  property  was  in  the  building  at  the  time  it  was 

10  Accord:  Tompkins  v.  Hartford  Fii-e  Ins.  Co.,  22  App.  Div.  380,  49  X. 
Y.  Supp.  184  (1897;  breach  of  mortgage  clause).  Contra:  Concordia  Fire 
Ins.  Co.  V.  Johnson,  4  Kan.  App.  7,  45  Pac.  722  (1896;  illegal  use).  Compare 
Kyte  V.  Commercial  T'nion  Assurance  Co.,  149  Mass.  110.  21  N.  E.  ,361,  3 
L.  R.  A.  508  (1889),  distintiuishing  the  Hinckley  Case,  and  holding  that,  if 
the  temporary  breach  causes  an  increase  of  risk,  the  policy  will  be  void. 
But  see  Traders'  Ins.  Co.  v.  Catlin,  163  111.  256,  45  N.  E.  255,  35  L.  R.  A. 
595  (1896).  holding  that  increase  of  risk  makes  no  difference.  See.  also, 
German  Mut.  Fire  Ins.  Co.  v.  Fox,  4  Neb.  (Unof.)  833,  96  N.  W.  652,  63  L. 
R.  A.  334  (1903). 

11  For  discussion  of  principles,  see  Vance  on  Insurance,  §  157.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  8,  p.  1618. 


326  THE  STANDARD   FIRE  POLICY 

burned,  but  was  being  used  in  an  attempt  to  extinguish  a  fire  some  200 
to  800  feet  from  the  building.  The  defendant  refused  to  pay  the  dam- 
ages claimed  by  the  plaintiff  for  the  loss  of  the  property,  on  the 
ground  that,  under  the  policy,  it  was  insured  only  while  contained  in 
the  building  mentioned  and  described  in  the  policy,  and  not  elsewhere. 
The  action  brought  to  recover  on  the  policy  was  tried  before  the  court 
without  a  jury,  and  the  court  found  in  favor  of  defendant's  conten- 
tion, and  thereupon  entered  judgment  in  its  favor.  Plaintiff  brings 
error. 

It  is  admitted  by  counsel  for  plaintiff  that  the  case  involves  but  the 
one  question:  What  is  the  proper  construction  of  the  words  in  the 
policy,  "while  located  and  contained  as  described  herein  and  not  else- 
where"? It  is  argued  by  counsel  that  the  usual  purpose  and  use  by 
the  plaintiff  of  a  fire  engine,  hose,  hose  cart,  and  other  appliances  de- 
scribed in  the  policy  would  be  to  extinguish  fires  in  the  village  and  that, 
in  order  to  be  so  used,  it  would  be,  as  occasion  might  require,  tem- 
porarily out  of  the  engine  house,  which  would  be  its  place  of  deposit 
when  not  in  use ;  that  such  use  must  have  been  contemplated  by  both 
parties  to  the  contract ;  and  that  such  use  must  be  presumed  to  have 
been  taken  into  consideration  by  the  defendant  in  fixing  the  rate  of 
premium. 

It  is  said  by  counsel  that  the  words  "contained  in,"  etc.,  and  like 
expressions,  were  in  use  before  the  adoption  of  the  standard  form  of 
policy,  and  had  a  well-settled  meaning,  and,  if  applied  to  property  the 
natural  use  of  which  required  it  to  be  kept  in  one  place,  the  insurance 
was  lost  if  the  property  was  removed  to  some  other  place,  but  if,  how- 
ever, the  property  was  of  a  sort  that  the  natural  use  of  it  required  a 
temporary  removal  from  the  place  designated  in  the  policy,  and  while 
so  temporarily  absent  was  destroyed,  it  was  covered  by  the  policy; 
that  the  words,  "contained  in,"  etc.,  were  of  further  description,  and 
indicated  the  place  of  deposit,  when  the  property  was  not  necessarily 
absent.  It  is  therefore  contended  that,  in  framing  the  standard  policy, 
the  intention  was  to  express  and  adopt  this  construction.  On  the  other 
hand,  counsel  for  the  defendant  claims  that,  even  under  the  old  forms 
of  policy,  the  insurance  did  not  continue  while  the  property  was  re- 
moved from  its  place  of  deposit,  where  the  limitations  were  as  con- 
tained in  this  policy,  to  wit,  "while  located  and  contained  as  described 
herein,  and  not  elsewhere." 

We  think  the  cases  cited  by  counsel  for  plaintiff  clearly  distinguish- 
able from  the  policy  in  suit.  Here  the  words  are  plain  and  unambig- 
uous, and  are  not  susceptible  of  construction  other  than  that  which  the 
words  themselves  import.  "While  located  and  contained  as  described 
herein,  and  not  elsewhere,"  means  that  the  policy  covered  the  property 
only  while  in  that  particular  building,  and  did  not  cover  it  while  it 
was  anywhere  else. 

In  Green  v.  Insurance  Co.,  91  Iowa,  615,  60  N.  W.  189,  the  words 
of  the  policy  were,  "while  contained  in  the  two-story  brick  and  frame 


THE   INTEREST  OF  THE   INSURED  327 

dwelling  house,"  etc.  The  court,  in  speaking  of  other  cases  to  which 
its  attention  had  been  called  by  counsel  for  plaintiff,  said :  "This  con- 
tract is  widely  different  from  those  in  the  cases  cited.  The  evidence 
shows  that  the  property  was  kept  sometimes  in  the  chapel  and  some- 
times in  the  house,  and  part  of  it  used  in  both  places ;  and  if  we  as- 
sume that  the  parties,  when  making  the  contract,  knew  of  this,  we 
have  additional  reason  for  limiting  the  liability  to  losses  while  in  the 
house.  It  is  sufficient  to  say  that  the  liability  is  thus  limited,  and  the 
courts  have  no  right  to  extend  it."  This  case  was  followed  by  Lak- 
ings  V.  Insurance  Co.,  94  Iowa,  476,  62  N.  W.  783,  28  L.  R.  A.  70. 

In  Bahr  v.  Insurance  Co.,  80  Hun,  309,  29  N.  Y.  Supp.  1031,  the 
limitation  in  the  policy  was,  "while  located  as  described  herein,  and 
not  elsewhere,  to  wit,  while  contained  in  the  frame  building  occupied 
as  a  wheelwright  shop,"  etc.  The  carriage  was  burned  in  a  livery  sta- 
ble a  block  and  a  half  away  from  there.  Judgment  for  plaintiff  was 
had  below,  and  the  court  said:  "This  judgment  cannot  stand.  The 
location  of  the  insured  property  was  a  warranty,  a  breach  of  which 
avoided  the  policy."  This  rule  was  recognized  by  this  court  in  Wildey 
V.  Insurance  Co.,  52  Mich.  446,  18  N.  W.  212,  and  English  v.  Insur- 
ance Co.,  55  Mich.  273,  21  N.  W.  340,  54  Am.  Rep.  Z77 . 

The  court  below  was  not  in  error  in  directing  judgment  in  favor 
of  defendant.  That  judgment  must  be  affirmed.  The  other  justices 
concurred.^  ^ 


IV.  The  Interest  of  the  Insured  ^» 


LANE  V.  PARSONS,  RICH  &  CO. 

(Supreme  Court  of  Minnesota,  1906.    97  Minn.  98,  106  N.  W.  485.  7  Ann. 

Cas.  1144.) 

In  the  matter  of  the  receivership  of  the  Millers'  &  Manufacturers' 
Insurance  Company;  Freeman  P.  Lane  and  Hugh  V.  Mercer,  re- 
ceivers.   From  an  order  disallowing  the  claim  of  Parsons,  Rich  &  Co., 

they  appeal. 

Elliott,  J.^^  This  is  an  appeal  from  an  order  of  the  district  court 
approving  and  confirming  the  action  of  the  receivers  of  the  Millers' 

12  The  clause  construed  in  this  case  is  contained  in  the  standard  policy 
forms  of  New  York,  Connecticut.  Louisiana.  Michigan,  Missouri,  New  Jersey, 
North  Carolina,  North  Dakota,  Pennsylvania,  Rhode  Island,  South  Dakota, 
and  Wisconsin.  It  is  not  contained  in  the  forms  adopted  in  Maine.  Massa- 
chusetts, Minnesota,  and  New  Hampshire. 

13  For  discussion  of  principles,  see  Vance  on  Insurance.  §§  158-160.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  pp.  1327-1391. 

14  Part  of  the  opinion  is  omitted. 


328  THE  STANDARD   FIRE  POLICY 

&  Manufacturers'  Insurance  Company  in  disallowing  the  claim  of  Par- 
sons, Rich  &  Co.  against  the  insolvent  corporation.  The  facts  upon 
which  the  claim  against  the  company  arose  are  practically  agreed  upon 
by  the  parties.  The  policy  was  issued  June  21,  1903,  and  by  its  terms 
insured  the  firm  of  Parsons,  Rich  &  Co.  against  loss  or  damage  by 
fire  upon  the  property  described  therein  in  the  sum  of  $1,000  from  ths 
date  thereof  until  May  20,  1904.  On  February  20,  1904,  the  insurance 
company  became  insolvent,  and  Freeman  P.  Lane  and  Hugh  V.  Mercer 
were  appointed  receivers.  A  fire  occurred  on  August  21,  1903,  and 
the  property  covered  by  the  policy  was  partially  destroyed.  A  claim 
was  duly  made  and  filed  and  disallowed  by  the  receivers.  It  is  con 
ceded  that  if  there  is  any  liability  on  the  part  of  the  company  or  the 
receivers  it  is  for  the  sum  of  $830. 

The  policy  in  question  covered  a  brick  and  frame  building,  and  addi- 
tions thereto,  located  upon  certain  lots  in  Newton,  Iowa,  and  used 
by  the  insured  in  connection  with  its  manufacturing  business.  It  also 
covered  the  stock  and  machinery  described  in  detail  in  the  policy.  The 
policy  contained  the  following  provisions:  "This  entire  policy  shall 
be  void  if  the  insured  has  concealed  or  misrepresented,  in  writing  or 
otherwise,  any  material  fact  or  circumstance  concerning  this  insur- 
ance or  the  subject  thereof;  or  if  the  interest  of  the  insured  in  the 
property  be  not  truly  stated  herein.  *  *  *  This  entire  policy,  un- 
less otherwise  provided  by  agreement  indorsed  thereon,  or  added  there- 
to, shall  be  void  *  *  *  jf  the  interest  of  the  insured  be  other 
than  unconditional  and  sole  ownership  or  if  the  subject  of  insur- 
ance be  a  building  on  ground  not  owned  by  the  insured  in  fee  sim- 
ple.    *     *     * " 

No  written  application  was  made  for  the  insurance,  and  no  written 
or  oral  representations  of  any  kind  or  character  were  made  by  the 
applicant.  When  the  policy  was  issued,  and  until  the  time  of  the  trial, 
the  title  to  the  lots  upon  which  the  insured  building  was  situated  was 
not  in  Parsons,  Rich  &  Co.,  but  was  in  George  W.  Parsons.  This  fact 
was  not  known  to  the  insurance  company  or  to  any  of  its  agents  or 
representatives  until  after  the  loss.     *     *     * 

The  appellant  contends  :  ( 1 )  That,  in  the  absence  of  any  inquiry  or 
application  or  representation,  the  condition  in  the  policy  as  to  title  and 
ownership  did  not  apply  to  the  then  existing  condition  of  the  title, 
but  referred  only  to  subsequent  changes  in  the  title.  (2)  That  under 
the  circumstances  the  insurer  should  be  held  to  have  known  of  the 
actual  condition  of  the  title,  and  to  have  waived  the  provisions  in 
the  policy  with  reference  to  sole  title  and  ownership  at  the  time  of 
the  issuance  of  the  policy.     *     *     * 

The  policy  provides  that  "this  entire  policy  *  *  *  shall  be  void 
*  *  *  if  the  interest  of  the  insured  be  other  than  unconditional 
and  sole  ownership,  or  if  the  subject  of  insurance  be  a  building  on 
ground  not  owned  by  the  insured  in  fee  simple."  There  are  some 
authorities  which  hold  that  this  provision  refers  only  to  subsequent 


THE   INTEREST   OF   THE   INSURED  329 

changes  in  the  title,  but  they  rest  upon  an  unnatural  construction  of 
the  language  of  the  policy.  The  words  used  refer  to  the  present  and 
not  to  the  future,  and  the  conditions  relate  to  facts  as  they  exist  at 
the  date  of  the  policy.     *     *     * 

The  entire  policy  is  not  set  out  in  the  record,  but  we  presume  that 
it  contains  the  usual  provisions  with  reference  to  the  effect  of  aliena- 
tion and  change  of  title.  The  contract  was  made  in  Iowa,  and  the  form 
commonly  in  use  in  that  state  provides  that  it  "shall  be  void  if  any 
change  or  diminution  other  than  by  the  death  of  the  insured  take 
place  in  the  interest,  title,  or  possession  of  the  subject  of  the  insurance." 
The  legal  effect  of  future  changes  in  the  title  is  provided  for  by  this 
provision,  and  the  provisions  relating  to  title  and  ownership  refer  to 
conditions  at  the  time  of  the  inception  of  the  contract.     *     *     * 

The  form  of  policy  now  in  common  use  requires  the  insured  to  dis- 
close the  extent  and  nature  of  his  interest  in  the  property,  as  it  is  a 
matter  which  largely  influences  underwriters  in  taking  or  rejecting 
risks  and  estimating  and  figuring  premiums.  *  *  *  But  it  is  con- 
tended that,  where  the  policy  is  issued  by  an  insurance  company  with- 
out a  written  application,  the  company  must  be  held  to  have  waived  the 
condition  of  the  policy  as  to  title  and  ownership.  This  does  not  appear 
to  be  an  open  question  in  this  jurisdiction,  as  we  have  in  two  instances 
held  contrary  to  the  appellant's  contention.     *     *     * 

It  is  claimed  that  the  company  waived  the  right  to  insist  upon  the 
breach  of  condition  by  issuing  the  policy  without  making  full  inquiries 
as  to  the  true  facts.  We  are  unable  to  see  any  grounds  for  either 
a  waiver  or  an  estoppel  in  the  facts  disclosed  by  this  record.  A  waiver 
means  the  intentional  relinquishment  of  a  known  right.  Dawson  v. 
Shillock,  29  ^linn.  191,  12  X.  W.  526;  Fraser  v.  .^tna  Life  Ins.  Co., 
114  Wis.  510,  523,  90  N.  W.  476.  As  said  in  Stackhouse  v.  Barnston, 
10  Ves.  466,  a  mere  waiver  signifies  nothing  more  than  an  expression 
of  an  intention  not  to  insist  upon  a  known  right.  In  Warren  v.  Crane, 
50  ^lich.  300,  15  N.  W.  465,  it  w^as  said  that  waiver  is  a  voluntary 
act,  and  implies  an  election  by  the  party  to  dispense  with  something  of 
value,  or  to  forego  some  advantage  which  he  might  at  his  option  have 
demanded  and  insisted  on.  Both  intent  and  knowledge  actual  or  con- 
structive, of  the  facts,  are  therefore  essential  elements.  Schreiber  v. 
Insurance  Co.,  43  Alinn.  367,  45  N.  W.  708;  Pence  v.  Langdon.  99 
U.  S.  578,  25  L.  Ed.  420.  The  intent  may  be  inferred  from  facts  and 
circumstances,  as  well  as  found  in  declarations  of  the  parties,  and  the 
knowledge  may  also  be  either  actual  or  constructive.  Fraser  v.  ^Etna 
Life  Ins.  Co., 'll4  Wis.  510,  90  X.  W.  476.  But,  as  said  in  St.  Paul 
F.  &  ^I.  Ins.  Co.  V.  Parsons,  47  Minn.  352,  50  X.  W.  240:  "Xor,  in 
general,  where  the  facts  do  not  constitute  an  estoppel,  should  one  who 
neither  knows  the  fact  of  the  forfeiture  nor  is  chargeable  with  fault 
in  not  knowing  it  be  held  to  have  waived  the  same  by  acts  or  con- 
duct not  intended  to  have  such  an  effect."     *     *     * 

In  the  present  case  it  is  not  claimed  that  there  is  any  evidence  even 


330  THE  STANDARD   FIRE  POLICY 

tending  to  show  that  any  agent  or  officer  of  the  insurance  company 
had  any  information  as  to  the  condition  of  the  title  to  the  real  estate 
before  the  policy  was  issued.  We  are  asked  to  presume  that  the  in- 
surer by  issuing  the  policy  without  investigation  on  its  part,  intended  to 
waive  facts  and  conditions  of  which  it  had  neither  actual  nor  construc- 
tive notice.  The  great  weight  of  authority  supports  the  rule  that  an 
insurance  company  will  not  be  permitted  to  take  advantage  of  a  con- 
dition contained  in  a  policy  to  avoid  payment  of  a  loss,  when  the  facts 
rendering  the  policy  void  by  its  terms  were  known  to  the  insurer  di- 
rectly or  through  its  agent  at  the  time  it  issued  the  policy  and  accepted 
the  premium.  This  doctrine  rests  upon  the  ground  that  facts  made 
known  to  an  agent  of  the  company,  when  acting  as  such,  are  in  law 
known  to  the  principal,  and  that  a  fraud  would  be  perpetrated  if  an 
insurance  company,  through  its  agent,  was  allowed  to  deliver  its  pol- 
icy and  accept  the  premium  with  knowledge  of  facts  which  under  its 
provisions  rendered  it  void,  ab  initio,  and  thereafter  assert  its  in- 
validity.    *     *     * 

The  rule  meets  with  our  entire  approval.  But  in  the  present  case 
neither  the  company  nor  its  agent  had  knowledge  of  the  conditions, 
nor  are  there  any  facts  upon  which  to  base  a  waiver,  unless  they  are 
to  be  presumed  from  the  mere  fact  that  the  policy  was  issued.     *     *     * 

In  the  case  now  under  consideration  there  was  no  written  applica- 
tion, no  questions  were  asked  by  the  agent,  and  no  representations, 
other  than  by  implication,  were  made  by  the  applicant  in  regard  to 
the  ownership  of  the  property  or  the  condition  of  the  title ;  and  there 
is  nothing  to  show  that  the  agent  had  any  knowledge  of  the  actual 
facts.  The  policy  in  question,  having  been  issued  to  Parsons,  Rich  & 
Co.  without  the  company  or  its  agent  having  any  information  or  knowl- 
edge of  the  fact  that  the  title  of  the  lots  upon  which  the  insured  build- 
ing stood  was  not  in  the  insured,  was  void  ab  initio  by  its  own  terms, 
and  is  unenforceable  unless  the  insurer,  after  the  loss,  waived  its  right 
to  assert  the  forfeiture.  The  difficulty  with  the  cases  which  support 
the  appellant's  contention  is  that  they  raised  an  estoppel  or  imply  a 
waiver  from  conditions  of  which  the  insurer  had  no  knowledge.  The 
waiver  rests  on  an  implication  arising  out  of  an  assumption.  If  the  in- 
surer had  knowledge  actual  or  implied,  through  its  agent,  when  the  pol- 
icy issued,  that  the  existing  conditions  created  a  ground  of  forfeiture 
under  the  terms  of  the  policy,  a  basis  for  waiver  would  have  existed, 
and  the  insurer  could  not  thereafter  have  claimed  a  forfeiture.  Issuing 
the  policy  with  such  knowledge  would  have  been  inconsistent  with  an 
honest  intention  to  claim  a  forfeiture  for  a  breach  of  the  condition. 

We  are  not  inclined  to  restrict  the  application  of  the  doctrine  of 
waiver  as  heretofore  applied  by  this  court  to  the  conditions  contained 
in  insurance  contracts.  It  has  been  an  efficient  means  by  which  to 
prevent  insurers  from  treating  the  contract  as  valid  when  it  is  to  their 
interest,  and  repudiating  it  when  called  upon  to  respond  to  its  burdens, 
thus  playing  fast  and  loose  with  the  insured.    But  the  rule  contended 


THE   INTEREST   OF   THE   INSURED  331 

for  seems  to  us  to  require  an  unreasonable  extension  of  the  doctrine. 
The  written  contract  says,  in  language  plain  and  unambiguous,  that 
it  shall  be  of  no  force  and  efifect  unless  certain  conditions  then  exist, 
and  the  existing  facts  are  necessarily  known  to  the  insured.  It  is 
argued  that  the  law  must  assume  that  all  such  conditions  were  known 
to  the  company,  and,  after  having  assumed  this  material  and  essential 
fact,  again  presume  that  it  intended  to  waive  any  results  arising  there- 
from to  its  advantage.  But  the  insured  knew  the  condition  of  his  title, 
and,  when  he  received  the  policy,  must,  if  he  read  it,  have  known  that 
the  insurer  had  entered  into  the  contract  upon  the  understanding  that 
the  applicant  had  full  ownership  and  a  fee  simple  title  to  the  lots  upon 
which  the  building  stood.  The  modern  fire  insurance  policy  is  prac- 
tically free  from  the  stipulations,  conditions,  and  provisions  set  in- 
finitesimal type  and  hidden  away  in  elusive  locations,  which  served  as 
traps  for  the  guileless  and  unwary  of  the  past  generations  of  insured. 
But  the  most  of  these  objectionable  features  have  been  effectually 
eliminated  by  the  courts  or  legislatures,  and  there  seems  to  be  no  good 
reason  why  the  present  insurance  contracts,  even  while  giving  the  in- 
.sured  the  benefit  of  the  doubt  when  ambiguous  language  is  used,  should 
not  be  treated  like  other  written  contracts  between  responsible  parties. 
Kollitz  V.  Equitable  Mut.  Life  Ins.  Co.,  92  Minn.  234,  99  N.  W.  892; 
Quinlan  v.  Prov.,  etc.,  Ins.  Co.,  133  N.  Y.  356,  31  N.  E.  31,  28  Am. 
St.  Rep.  645.     *     *     *     Affirmed.^" 


JOHANNES  V.  STANDARD  FIRE  OFFICE  OF  LONDON. 

(Supreme  Court  of  Wisconsin,  18S7.     70  Wis.  196,  35  N.  W.  29S,  5  Am.  St. 

Rep.  159.) 

Cole,  C.  J.  The  defense  is  based  upon  alleged  breaches  of  the  con- 
ditions in  the  policy,  which  it  is  claimed  exonerate  the  defendants 
from  all  liability  for  the  loss.  The  policy  provided  it  should  be  void 
if  there  was  "any  omission  to  make  known  every  fact  material  to 
the  risk,"  and  "if' the  interest  of  the  assured  in  the  property  be  other 
than  the  entire,  unconditional,  and  sole  ownership  of  the  property  for 
the  use  and  benefit  of  the  assured,  or  if  the  building  insured  stands  on 
leased  ground,  it  must  be  so  represented  to  the  company  and  so  ex- 
pressed in  the  written  part  of  the  policy,  otherwise  the  policy  to  be 
void."  It  is  said  the  facts  proven  on  the  trial  show  a  breach  of  these 
conditions.  There  is  really  no  disagreement  about  the  material  facts 
of  the  case. 

15  The  provisions  as  to  sole  and  unconditional  ownership  Is  contained  in 
the  standard  form  of  policy  prescril)ed  in  New  York,  Connecticut,  Louisiana, 
Michigan.  Missouri,  New  Jersey,  North  Carolina,  North  Dakota,  Pennsyl- 
vania, Rhode  Island,  and  Wisconsin.  It  is  not  contained  in  ihe  standard 
form  prescribed  in  Maine,  Massachusetts,  Minnesota,  New  Hampshire,  and 
South  Dakota. 


332  THE  STANDARD  FIRE  POLICY 

It  appears  that  the  plaintiff  apphed  to  the  local  agent  of  the  Stand- 
ard Company  for  insurance  about  the  first  of  July,  1883.  At  this  time 
he  had  possession  of  the  realty  on  which  the  building  and  insured 
property  were  situated,  under  a  land  contract  upon  which  he  had  paid 
$100;  $200,  the  balance  of  the  purchase  price,  became  due  and  was 
paid  after  the  policy  was  issued.  The  improvements  on  the  land  were 
of  greater  value  than  the  insurance.  The  policy  was  issued  and  re- 
mained in  the  hands  of  the  agent  until  the  land  was  paid  for  and  a 
warranty  deed  obtained,  which  was  in  August,  1883.  The  plaintiff 
received  the  policy  from  the  agent  in  October  following.  There  was 
no  written  application  made  for  insurance,  and  no  representations 
made,  or  question  asked  as  to  plaintiff's  title  or  interest  in  the  land 
or  building;  nothing  was  said  upon  that  subject.  The  agent  testified 
that  he  did  not  know  what  the  plaintiff's  title  was  in  the  land  or  that 
he  held  it  under  a  contract  of  purchase.  The  plaintiff,  however,  tes- 
tified that  when  he  made  application  for  insurance  he  showed  the 
agent  the  contract,  who  took  it  to  obtain  a  description  of  the  land  on 
which  the  insured  building  was  situated;  and,  in  answer  to  a  ques- 
tion submitted,  the  jury  found  that  such  was  the  fact.  It  is  plain, 
therefore,  that  the  agent  had  the  means  of  information  as  to  plain- 
tiff's interest  in  the  realty  before  him,  and  it  is  almost  incredible  that 
he  did  not  know  what  his  title  was.  Under  the  circumstances,  the 
plaintiff  cannot  be  justly  charged  with  an  omission  to  make  known 
the  fact  that  he  held  the  land  under  a  contract  for  the  purchase 
thereof. 

We  do  not  dwell  upon  these  facts  nor  express  any  opinion  as  to- 
how  they  would  affect  the  liability  of  the  company,  providing  it  was 
made  to  appear  that  the  plaintiff  was  not  the  sole  and  unconditional 
owner  of  the  entire  interest  in  the  property  within  the  meaning  of 
the  condition  relied  on.  But  if  the  plaintiff  is  held  to  the  exact  lan- 
guage of  the  condition,  which  it  is  perfectly  clear  he  never  saw  until 
long  after  the  policy  was  issued,  still  the  evidence  shows  that  his  in- 
terest in  the  property  was  an  entire,  unconditional,  and  sole  owner- 
ship. He  was  the  real  owner  of  the  property  in  equity  and  for  all 
purposes  of  insurance.  The  condition  does  not  relate  to  a  legal  title 
in  fee-simple  nor  is  that  the  interest  described.  An  equitable  title,  if 
sole  and  unconditional,  answers  the  description  fully,  and  if  the  prop- 
erty was  destroyed  the  entire  loss  would  fall  upon  the  plaintiff.  There 
is  no  ground,  therefore,  for  saying  there  was  a  misdescription  of  the 
nature  of  the  plaintiff's  interest  in  the  property.  If  the  company 
deemed  it  material  that  the  state  of  the  legal  title  should  be  described, 
it  doubtless  would  have  framed  the  language  to  call  for  that  informa- 
tion. But  it  did  not.  The  interest  of  the  plaintiff  satisfies  the  con- 
dition as  we  construe  it,  as  he  was  in  possession  and  was  the  sole 
equitable  owner.  In  the  absence  of  any  specific  inquiry  by  the  insur- 
ers, or  express  stipulation  in  the  policy,  no  particular  description  of 
the  nature  of  the  insurable  interest  is  necessary.     Strong  v.  Insurance- 


THE    INTEREST   OF   THE    INSURED  333 

Co.,  10  Pick.  (Mass.)  40,  20  Am.  Dec.  507;  King  v.  Insurance  Co.,  7 
Cush.  (Mass.)  13,  54  Am.  Dec.  683 ;  Insurance  Co.  v.  Brown,  43  N. 
Y.  389,  3  Am.  Rep.  711. 

But  the  question  before  us  seems  to  be  settled  by  the  adjudications. 
In  Hough  V.  Insurance  Co.,  29  Conn.  10,  76  Am.  Dec.  581,  an  ap- 
plicant for  insurance  had  described  the  property  in  a  written  appHca- 
tion  as  "his  house,"  and  it  was  so  described  in  the  poHcy.  The  pol- 
icy contained  the  condition  "if  the  interest  in  the  property  to  be  in- 
sured is  not  absolute  it  must  be  so  represented  to  the  company,  and 
expressed  in  the  policy  in  writing;  otherwise  the  insurance  shall  be 
void."  The  legal  title  to  the  property  was  in  another  party,  with 
whom  the  insured  had,  at  the  time  of  the  application,  made  a  parol 
contract  for  its  purchase,  for  a  price  agreed  upon,  which  the  insured 
had  agreed  absolutely  to  pay,  and  a  part  of  which  he  had  paid,  and 
the  insured  had  entered  into  possession  as  purchaser,  and  had  made 
valuable  improvements  on  the  property.  Upon  the  claim  of  the  in- 
surance company,  in  a  suit  on  the  policy,  that  the  insurance  was  void 
by  reason  of  the  omission  of  the  insured  to  state  in  his  application 
the  condition  of  the  title,  the  court  charged  the  jury  that  the  plain- 
tiff was  to  be  regarded  as  the  owner  of  the  property,  if  he  had  the 
equitable  title,  and  his  interest  was  such  that  the  loss  w^ould  fall  on 
him  if  the  property  was  destroyed.  This  charge  was  held  to  be  cor- 
rect, and  that  an  absolute  interest  which  is  so  completely  vested  in 
the  party  owning  it  that  he  could  not  be  deprived  of  it  without  his 
consent,  would  satisfy  the  condition.  In  Dolliver  v.  Insurance  Co., 
128  Mass.  315,  35  Am.  Rep.  378,  a  policy  of  insurance  contained  the 
same  condition  precisely  as  the  one  before  us.  The  insured,  at  the 
time  the  policy  was  issued,  was  the  owner  in  fee  of  the  property  in- 
sured, but  had  mortgaged  it,  and  also  leased  it  for  a  term  of  years. 
The  policy  contained  no  statement  of  these  incumbrances,  still  it  was 
held  that  the  policy  was  not  thereby  avoided.  The  court  say :  "The 
provision  is  in  the  body  of  the  policy,  and  is  inserted  for  the  benefit 
of  the  insurer.  It  is  to  be  construed  strictly  against  it,  and  liberally 
in  behalf  of  the  assured.  If,  therefore,  its  terms  can  be  satisfied  by 
a  construction  which  will  save  the  policy,  and  at  the  same  time  ac- 
cord with  the  established  rules  of  law,  such  construction  must  be 
adopted."  There  are  numerous  cases,  which  hold  that  one  who  has 
an  equitable  interest  in  property  may  be  described  as  the  owner  there- 
of. Insurance  Co.  v.  Tyler,  16  Wend.  (N.  Y.)  385,  30  Am.  Dec.  90; 
Insurance  Co.  v.  Martin,  40  N.  J.  Law,  568,  29  Am.  Rep.  271 ;  Pel- 
ton  V.  Insurance  Co.,  77  N.  Y.  605 ;  Insurance  Co.  v.  Weill,  69  Va. 
389,  26  Am.  Rep.  364 ;  Acer  v.  Insurance  Co.,  57  Barb.  (N.  Y.)  68 ; 
Insurance  Co.  v.  Fogelman,  35  Mich.  482 ;  Dohn  v.  Insurance  Co.,  5 
Lans.  (N.  Y.)  275 ;  Insurance  Co.  v.  Wilgus,  88  Pa.  107 ;  Martin 
v.  Insurance  Co.,  44  N.  J.  Law,  486,  4  Am.  Rep.  397;  Insurance  Co. 
v.  Haven,  95  U.  S.  242,  24  L.  Ed.  473. 

In  this  case,  the  plaintiff,  by  the  contract  and  its  part  performance, 


334  THE   STANDARD   FIRE   POLICY 

had  acquired  an  absolute  vested  interest  in  the  property  which  he 
could  incumber,  sell,  and  which  would  descend  to  his  heirs.  He  was 
not  in  default  in  making  payments,  and  was  to  all  intents  and  pur- 
poses the  sole  owner.  The  condition  in  question  speaks  only  of  the 
nature  of  the  interest  insured,  not  of  its  extent  or  legal  character. 
The  plaintiff's  interest  fully  answered  the  description  in  the  condi- 
tion. In  Hinman  v.  Insurance  Co.,  36  Wis.  159,  the  assured  made  a 
written  application  in  which  he  falsely  represented  his  interest  in 
the  property.  He  was  in  default  in  his  payments,  and  this  court  held 
that  a  representation  that  he  was  the  sole  and  undisputed  owner  of 
the  insured  property  was  in  the  nature  of  a  warranty,  and,  being  un- 
true, avoided  the  policy.  The  case  is  distinguishable  from  the  one  at 
bar.  The  learned  counsel  for  the  defendants  called  our  attention  to 
cases  which  decide  that  one  who  has  merely  an  estate  for  life  in  prem- 
ises cannot  be  regarded  as  the  sole  and  absolute  owner,  within  the 
meaning  of  a  condition  such  as  we  are  considering  (Davis  v.  Insur- 
ance Co.,  67  Iowa,  494,  25  N.  W.  745 ;  Carver  v.  Insurance  Co.,  69 
Iowa,  202,  28  N.  W.  555) ;  or  one  who  has  but  a  lien  for  a  debt,  as 
in  Rohrback  v.  Insurance  Co.,  62  N,  Y.  47,  20  Am.  Rep.  451;  or  a 
purchaser  at  an  execution  sale  (Insurance  Co.  v.  Brennan,  58  111. 
158,  11  Am.  Rep.  54);  or  a  mortgagee  in  possession  (Southwick  v. 
Insurance  Co.,  133  Mass.  457;  Walter  v.  Assurance  Co.  [C.  C]  10 
Fed.  232) ;  or  one  who  has  only  a  leasehold  interest  (Mers  v.  In- 
surance Co.,  68  Mo.  127).  But  these  cases,  it  is  obvious,  are  not  in 
point  here,  where  the  insured  was  in  no  default  in  making  payments, 
and  was  the  equitable  owner,  having  the  right  to  enforce  a  specific 
performance  of  the  contract,  and  obtain  the  legal  title  outstanding  in 
his  vendor. 

It  follows  from  these  views  that  there  was  no  breach  of  the  condi- 
tion in  question  shown,  and  that  the  judgment  must  be  affirmed/^ 


HAIDER  v.  ST.  PAUL  FIRE  &  MARINE  INS.  CO 

(Suprerae  Court  of  Minnesota,  1897.     67  Minn.  514,  70  N.  W.  805.) 

Action  by  Joseph  Haider  and  the  Citizens'  Savings  Bank  of  St. 
Paul  against  the  St.  Paul  Fire  &  Marine  Insurance  Company.  Judg- 
ment ordered  for  defendant.  From  an  order  granting  a  new  trial, 
defendant  appeals. 

Canty,  J.  This  is  an  action  on  an  insurance  policy  insuring  a 
dwelling  house  against  loss  by  fire.  The  policy  contains  the  follow- 
ing clause:  "This  entire  policy,  unless  otherwise  provided  by  agree- 
ment indorsed  thereon  or  added  thereto,  shall  be  void     *     *     *     if  the 

16  Partnership  proi>erty,  see  Wood  v.  American  Fire  Ins.  Co.,  post,  p.  389. 
Effect  of  colorable  transfer  in  fraud  of  creditors,  see  Forward  v.  Continental 
Ins.  Co.,  ante,  p.  274. 


THE    INTEREST    OF   THE   INSURED  335 

interest  of  the  insvired  be  other  than  unconditional  and  sole  ownership ; 
or  if  the  subject  of  insurance  be  a  building  on  ground  not  owned  by 
the  insured  in  fee  simple." 

The  case  was  tried  before  the  court  without  a  jury  on  a  stipulation 
of  facts  in  which  it  is  stated :  That  at  the  time  the  insurance  policy 
was  made  and  at  the  time  of  the  loss  plaintiff  was  the  owner  of  a  cer- 
tain lot  1,  in  the  city  of  St.  Paul,  but  was  not  the  owner  of  lot  2, 
adjoining  lot  1,  and  never  had  or  claimed  any  right  or  title  in  or  to 
said  lot  2.  That,  except  as  hereinafter  stated,  the  house  was  his  prop- 
erty. That  the  house  was  45  feet  in  length  and  16  feet  in  width,  and 
was  built  by  plaintiff  2  feet  of  its  w^dth  on  lot  2,  without  the  consent 
of  the  owner  of  lot  2,  and  so  stood  2  feet  on  lot  2  at  the  time  of 
the  loss.  The  balance  of  it  w^as  built  and  stood  on  lot  1,  except  that 
20  feet  of  the  front  end  of  it  stood  on  the  street  in  front  of  the  ends 
of  lots  1  and  2,  which  lots  abutted  on  said  street.  That  at  the  time 
the  policy  was  issued  the  defendant's  agent  personally  examined  the 
premises  for  the  purpose  of  inspecting  the  house  as  a  risk,  and  noticed 
that  the  house  was  not  in  line  with  the  other  houses,  but  stood  further 
out  into  the  street, — nearer  the  center  of  the  street, — but  that  the 
street  was  then  rough,  ungraded,  and  obstructed  by  rubbish  and  bushes. 
That  at  that  time  neither  plaintiff  nor  defendant  or  its  said  agent  knew 
that  any  part  of  said  house  stood  upon  said  street  or  on  said  lot  2,. 
and  plaintiff  did  not  discover  and  was  not  informed  as  to  the  true 
location  of  the  house  as  aforesaid  until  several  months  after  the  pol- 
icy was  issued,  and  about  two  months  before  the  loss.  The  court 
found  all  of  these  facts,  and  thereon  ordered  judgment  for  defend- 
ant.    From  an  order  granting  a  new  trial,  defendant  appeals. 

The  only  question  presented  on  this  appeal  is  whether  the  facts 
above  stated  constitute  a  breach  of  the  conditions  of  the  policy  above 
quoted,  or  any  of  them,  so  as  to  avoid  the  policy. 

There  is  no  breach  of  the  condition  providing  that,  "if  the  subject 
of  insurance  be  a  building  on  ground  not  owned  by  the  insured  in  fee 
simple,"  the  policy  shall  be  void.  According  to  the  well-established 
principles  of  interpretation,  there  is  no  breach  of  this  condition  until 
it  is  totally  broken.  As  plaintiff  owned  in  fee  simple  a  part  of  the 
land  on  which  the  building  was  situated,  the  condition  was  not  broken, 
although  he  did  not  own  the  other  part.  Thus,  where  a  policy  pro- 
vided that,  if  the  building  should  fall,  the  insurance  should  cease,  it 
was  held  that  the  insurance  did  not  cease  when  a  part  of  the  build- 
ing fell,  and  the  rest  remained  standing.  Breuner  v.  Insurance  Co.,. 
51  Cal.  101.  21  Am.  Rep.  703;  Insurance  Co.  v.  Mette,  27  111.  App. 
324.  So,  where  the  condition  was  that  the  premises  should  not  be- 
come vacant  and  unoccupied,  it  was  held  not  to  be  broken  by  the 
premises  becoming  partly  vacant,  when  they  remained  partly  occupied. 
American  Fire  Ins.  Co.  v.  Brighton  Cotton  jManuf'g  Co.,  125  111.  131, 
17  N.  E.  771. 


336  THE   STANDARD   FIRE   POLICY 

We  will  now  consider  the  other  condition  avoiding  the  policy,  "If 
the  interest  of  the  insured  be  other  than  unconditional  and  sole  own- 
ership." The  front  end  of  the  house  was  built  20  feet  upon  the  street. 
It  must  be  presumed  that  plaintiff  was  the  owner  in  fee  of  the  street 
in  front  of  his  lot  to  the  middle  of  such  street,  and  that  the  public 
have  only  an  easement  therein.  Then  the  public  had  no  interest  in 
or  title  to  this  house,  and  can  only  compel  plaintiff  to  remove  the 
house,  which,  as  against  the  public,  he  would  have  a  right  to  do. 
Therefore,  as  between  him  and  the  public,  he  was  the  sole  and  un- 
conditional owner  of  the  house. 

But  the  house  also  stood  two  feet  on  lot  2,  and  it  is  claimed  by  ap- 
pellant that  this  part  of  the  house  had  been  attached  to  lot  2,  and  be- 
came a  part  of  it ;  that  the  title  and  ownership  of  this  two  feet  of  the 
house  was  in  the  owner  of  lot  2,  and  therefore  plaintiff  was  not  the 
sole  and  unconditional  owner  of  the  house.  Plaintiff  built  the  house, 
was  in  the  exclusive  possession  of  it,  insured  it  in  good  faith  believ- 
ing that  he  was  the  sole  owner  of  it,  and  up  to  the  time  of  the  loss 
no  one,  so  far  as  appears,  asserted  any  adverse  claim  to  any  part  of  it. 
Is  it  the  meaning  of  this  condition  that  whenever  there  is  a  loss  the 
insurance  company  may  have  the  lot  surveyed,  and,  if  it  is  found  that 
the  building  stood  an  inch^  or  a  tenth  of  an  inch,  beyond  the  line  of 
the  lot  on  land  not  owned  by  the  insured,  the  company  shall  escape 
liability?  Is  it  the  meaning  of  this  clause  that,  whenever  there  is  a 
loss,  the  insurance  company  may  examine  with  a  microscope  the  title 
to  the  land  on  which  the  building  stood,  and,  if  any  flaw  is  found  in 
that  title,  the  company  shall  escape  liabiHty?  In  every  such  instance 
the  statute  of  limitations  might  have  run  in  favor  of  the  insured,  and 
he  might  have  continued  forever  to  be  the  owner  of  the  property  as 
against  all  the  world,  were  it  not  for  the  industry  of  the  insurance 
company  in  finding  means  by  which  to  avoid  its  liability. 

We  cannot  hold  that  by  the  condition  in  question  it  was  intended 
to  give  the  insurer  a  right  to  assert  a  defect  in  the  title  of  the  in- 
sured, which  defect  no  one  else  had  ever  asserted.  In  the  case  of 
Miller  v.  Insurance  Co.,  (C.  C.)  7  Fed.  649,  Air.  Justice  Wallace,  in 
passing  on  this  same  condition  in  an  insurance  policy,  said:  "The 
defendant's  off'er  of  proof  was,  therefore,  nothing  more  than  a  prop- 
osition to  show  that  the  plaintiff",  although  he  had  a  title  to  the  mill 
property  which  apparently  vested  in  him  the  sole,  unconditional,  and 
entire  ownership  of  the  property,  had  a  defective  title.  *  *  *  So 
long  as  the  plaintiff,  under  claim  of  right,  had  the  exclusive  use  and 
enjoyment  of  the  insured  property,  without  any  assertion  of  an  ad- 
verse right  or  interest  in  it  by  any  other  person,  he  was  the  owner 
of  the  property.  In  the  ordinary  acceptation  of  the  term,  who  would 
be  considered  the  owner  of  real  estate  except  the  grantee  in  possession. 
when  no  adverse  claim  has  been  made  by  another?"  See,  also,  Steven- 
son v.  Insurance  Co.,  26  U.  C.  Q.  B.  148. 


CHANGE    OF   INTEREST,  TITLE,  OR   POSSESSION  337 

We  are  of  the  opinion  that,  as  to  the  defendant  insurance  company, 
plaintifif  was  the  sole  owner  of  the  house,  within  the  meaning  of  this 
policy.    The  order  appealed  from  is  affirmed. 


V.  Change  of  Interest,  Title,  or  Possession 


IT 


WOLF  V.  THERESA  VILLAGE  MUT.  FIRE  INS.  CO. 

(Supreme  Court  of  Wisconsin,  1902.     115  Wis.  402,  91  N.  W.  1014.) 

Action  by  M.  J.  Wolf  against  the  Theresa  Village  Mutual  Fire  In- 
surance Company.     From  a  judgment  for  plaintiff,  defendant  appeals. 

Cassoday,  C.  J.^^  *  *  *  The  more  serious  question  is  whether 
<he  policy  was  forfeited  by  reason  of  a  violation  of  the  other  clause 
of  the  provision  of  the  policy  quoted,  to  the  effect  that  the  entire  pol- 
icy should  be  void  "if  any  change"  should  take  place  "in  the  interest, 
title,  or  possession"  of  the  property,  "whether  by  legal  judgment  or 
process  or  by  voluntary  act  of  the  insured  or  otherwise."  The  an- 
swer denies  "that  the  plaintiff'  owned  or  had  any  interest  in  the  build- 
ings or  premises  mentioned  in  said  complaint  at  the  time  of  the  hap- 
pening of  said  loss."  That  is  the  particular  question  litigated  upon 
the  trial.  The  motion  for  a  nonsuit  was  based  upon  a  supposed 
change  "in  the  interest,  title,  or  possession"  of  the  property  after  the 
making  of  the  contract  of  insurance,  and  before  the  fire.  The  defend- 
ant proved,  and  the  court  found,  and  it  is  undisputed,  that  June  28, 
1900,  some  four  months  prior  to  the  fire,  the  plaintiff  and  his  wife 
executed  and  delivered  to  the  Jos.  Schlitz  Brewing  Company  a  con- 
veyance of  the  premises  in  the  form  of  a  warranty  deed,  which  was 
recorded  July  9,  1900.  The  trial  court  found  that  the  deed  was  so 
given  "as  security  on  an  open  account."  It  is  undisputed  that  the 
deed  was  so  given  as  security,  and  that  at  the  time  of  its  delivery  the 
Jos.  Schlitz  Brewing  Company  gave  back  to  the  plaintiff  a  writing,  of 
which  the  following  is  a  copy,  omitting  the  description  and  signa- 
tures: "We  hereby  acknowledge  the  receipt  of  the  warranty  deed  of 
*  *  *  ,  which  we  are  to  hold  as  collateral  security  to  guarantee 
the  payment  of  an  account  of  M.  J.  Wolf,  and  we  agree  to  deed  back 
this  property  upon  said  M.  J.  Wolf  meeting  all  his  obligations  to 
us."  It  also  appears  from  the  evidence  that  between  the  time  of  the 
delivery  of  the  deed  and  the  fire  the  running  account  was  constantly 
changing,  the  lowest  amount  at   any  time  being  $1,182.78,  and  the 

17  For  discussion  of  principles,  see  Vance  on  Insurance,  §  161.     See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  pp.  1713-1764. 

18  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 

Cooley  Ins. — 22 


338  THE   STANDARD   FIRE   POLICY 

highest  amount  being  $1,839.45.  The  trial  court  held,  as  a  conclusion 
of  law,  that  the  deed  from  the  plaintiff  to  the  Joseph  Schlitz  Brew- 
ing Company  "was  a  mortgage,  and  did  not  invalidate"  the  poHcy. 

The  defendant  contends  that  the  written  agreement  of  the  Brewing 
Company  to  hold  the  deed  "as  collateral  security"  for  "the  payment  of 
an  account"  of  the  plaintiff  and  "to  deed  back"  the  property  to  the 
plaintiff  upon  his  payment  of  his  account,  not  being  recorded,  was 
improperly  received  in  evidence,  and  therefore  should  not  be  consid- 
ered as  supporting  the  findings.  In  support  of  such  contention,  coun- 
sel rely  upon  section  2243  of  the  Revised  Statutes  of  1898.  That 
section  is  contained  in  the  chapter  entitled  "Of  Alienation  by  Deed, 
and  the  Proof  and  Recording  of  Instruments  Affecting  Title  to  Land." 
It  was  manifestly  intended  to  protect  subsequent  bona  fide  purchas- 
ers of  real  estate  for  value,  as  prescribed  in  the  two  sections  of  the 
statute  imrnediately  preceding,  against  such  unrecorded  defeasance. 
In  construing  a  statute,  regard  is  to  be  had  to  the  purpose  of  the 
enactment.  Harrington  v.  Smith,  28  Wis.  43;  Wisconsin  Industrial 
School  for  Girls  v.  Clark  Co.,  103  Wis.  651,  79  N.  W.  422.  The 
defendant  was  not  a  purchaser  of  the  premises  insured  in  any  sense. 

If  the  conveyance  avoided  the  policy,  it  must  be  by  virtue  of  a 
change  "in  the  interest,  title,  or  possession  of  the"  property  insured,  in 
violation  of  the  forfeiture  clause  in  the  policy.  The  giving  of  the 
deed  and  taking  back  the  defeasance  was  nothing  more  nor  less  than 
a  mortgage.  Did  the  mere  giving  of  the  mortgage  constitute  such 
change?  This  court  held  several  years  ago  that  an  execution  sale  of 
real  estate  is  in  itself  no  ground  of  forfeiture  under  the  condition  in 
a  policy  which  provides  for  the  immediate  termination  of  the  risk,  "if 
the  property  be  sold  or  transferred,  or  any  alienation  or  change  take 
place  in  the  title  or  possession,  whether  by  legal  process  or  judicial 
decree,  or  voluntary  transfer  or  conveyance."  Hammel  v.  Insurance 
Co.,  54  Wis.  72,  11  N.  W.  349,  41  Am.  Rep.  1.  So  it  has  frequently 
been  held  that  a  mortgage  upon  real  estate  does  not  constitute  a 
change  in  the  title  or  possession  of  the  premises,  within  the  meaning 
of  such  a  clause  in  the  policy.  Insurance  Co.  v.  Spankneble,  52  111. 
53,  4  Am.  Rep.  582;  Insurance  Co.  v.  Walsh,  54  111.  164,  5  Am. 
Rep.  115;  Insurance  Co.  v.  Gibe,  162  111.  251,  44  N.  E.  490;  Nease 
v.  Insurance  Co.,  32  W.  Va.  283,  9  S.  E.  233;  Barry  v.  Insurance 
Co.,  110  N.  Y.  1,  17  N.  E.  405;  Bank  of  Glasco  v.  Springfield  Fire 
&  Marine  Ins.  Co.,  5  Kan.  App.  388,  49  Pac.  329. 

But  it  is  contended  that,  although  the  mortgage  did  not  operate  to 
change  the  title  or  possession,  nevertheless  that  it  did  operate  to 
change  "the  interest"  of  the  plaintiff  in  the  property.  At  first  blush 
there  would  seem  to  be  some  plausibility  in  the  contention.  But  it 
is  to  be  remembered  that  in  this  and  most  of  the  states  a  mortgage 
is  a  mere  lien  or  security.  Slaughter  v.  Bernards,  97  Wis.  184,  72 
N.  W.  977;  Cumps  v.  Kiyo,  104  Wis.  656,  80  N.  W.  937.  In  this 
last  case  the  mortgage  consisted  of  a  deed  absolute  in  form  with  a 


CHANGE    OF    INTEREST,  TITLE,  OR   POSSESSION  339 

defeasance  back,  as  here.  We  are  not  aware  that  the  precise  question 
here  presented  has  been  determined  in  this  court.  In  Ohio,  under  a 
clause  in  the  pohcy  substantially  like  the  one  in  question,  it  was  held 
that  the  giving  of  a  mortgage  did  not  avoid  the  policy,  and  that  "the 
words  'title'  or  'possession,'  as  here  used,  mean  an  actual  change  in 
law  and  equity,  and  the  word  'interest'  means  a  change  in  the  insur- 
able interest  of  the  owner  of  the  property,  neither  of  which  is  affected 
by  the  execution  of  a  mortgage."  Fire  Ofifice  v.  Clark,  53  Ohio  St. 
414.  42  N.  E.  248,  38  L.  R.  A.  562.  In  that  case,  as  here,  the  mort- 
gage was  in  the  form  of  a  deed  absolute,  with  a  defeasance.  So  it 
has  been  held  in  Texas  that  "the  execution  of  a  mortgage  on  the  real 
estate  on  which  the  building  insured  is  situated  is  not  a  change  of 
interest  within  the  meaning  of  the  condition  in  a  policy  declaring  the 
policy  forfeited  'if  any  change  other  than  the  death  of  the  insured 
take  place  in  the  interest,  title,  or  possession  of  the  subject  of  the  insur- 
ance.' "  Lampasas  Hotel  &  Park  Co.  v.  Phoenix  Ins.  Co.  (Tex.  Civ. 
App.)  38  S.  W.  361 ;  Same  v.  Home  Ins.  Co.,  17  Tex.  Civ.  App.  615, 
43  S.  W.  1081.  It  will  be  observed  that  the  language  of  the  forfeiture 
clause  in  the  policy  in  that  case  was  the  same  as  in  this.  The  same 
is  true  of  the  case  of  Peck  v.  Insurance  Co.,  16  Utah,  121,  51  Pac. 
255,  67  Am.  St.  Rep.  600,  where  the  deed  was  absolute  in  form,  but 
given  to  secure  the  payment  of  a  debt. 

We  must  hold  that  the  giving  of  the  mortgage  did  not  operate  to 
change  the  "interest,  title,  or  possession"  in  the  property  insured,  with- 
in the  meaning  of  the  policy. 

The  judgment  of  the  circuit  court  is  affirmed.^* 


WOOD  V.  AMERICAN  FIRE  INS.  CO.  OF  PHILADEL- 
PHIA, PA. 

(Court  of  Appeals  of  New  York,  1896.     149  N.  Y.  3S2,  44  N.  E.  80,  52  Am. 

St.   Kep.  733.) 

Action  by  Jennie  M.  Wood  against  the  American  Fire  Insurance 
Company  of  Philadelphia,  Pa.,  on  a  policy  of  fire  insurance.  There 
was  judgment  for  plaintiff,  which  was  affirmed  by  the  general  term 
(78  Hun,  109,  29  N.  Y.  Supp.  250),  and  defendant  appeals. 

O'Brien,  J.  The  plaintiff  recovered  upon  a  policy  of  insurance,  of 
which  she  was  the  assignee,  issued  by  the  defendant,  upon  a  building 
used  as  a  store,  January  9,  1891,  and  W'hich  was  destroyed  by  fire 
March  31,  1891.    The  only  defenses  interposed  by  the  answer,  which 

19  The  provision  is  practically  the  same  in  the  standard  forms  of  policy 
prescribed  in  New  York.  Connecticut.  Louisiana,  Mirhi.tran,  Missouri.  New 
Jer-ey,  North  Carolina.  North  Dakota.  Pennsylvania,  Rhode  Island,  and  Wis- 
consin. In  Maine,  Massachusetts,  Minnesota.  New  Hampshire,  and  South 
Dakota  the  provision,  thoutrh  varying  somewhat  in  the  wording,  declares  that 
the  policy  shall  be  void  if  the  "property  shall  be  sold." 


340  THE   STANDARD   FIRE   POLICY 

were  proven  and  found  at  the  trial,  were:  (1)  That  Wood  Bros.,  a 
firm  composed  of  six  brothers,  which  owned  the  property  and  procured 
the  insurance,  had  not,  at  the  time,  the  sole  and  unconditional  title 
or  ownership  of  the  property;  and  (2)  that  the  property  covered  by 
the  policy  had  been  sold  upon  judgment  and  execution  against  the 
firm  some  days  before  the  loss.  The  contract  was  made  by  means  of 
what  is  known  as  the  "standard  policy,"  which  contained  the  condi- 
tion that  it  "shall  be  void  *  *  *  jf  ^\^q  interest  of  the  insured  shall 
be  other  than  unconditional  and  sole  ownership,  or  *  *  *  if  any 
change,  other  than  by  the  death  of  an  assured,  take  place  in  the  interest, 
title  or  possession  of  the  subject  of  the  insurance  *  *  *  whether 
by  legal  process  or  judgment,  or  by  the  voluntary  act  of  the  insured 
or  otherwise." 

With  respect  to  the  defense  first  referred  to,  it  appeared  that  in  the 
year  1885,  one  of  the  individuals  composing  the  firm  made  a  general 
assignment  of  his  individual  property  for  the  benefit  of  his  creditors, 
and  also  of  his  interest  in  the  firm ;  that  in  1888  his  assignee  sold  what- 
ever interest  in  the  firm  property  that  passed  to  him  by  the  assignment 
to  a  third  party,  and  before  the  policy  was  issued  had  accounted  and 
been  discharged.  The  assignee  had  no  accounting  with  the  firm  in 
order  to  ascertain  what  interest  the  assignor  had,  if  any,  in  the  surplus, 
if  any,  and  no  claim  was  ever  made  upon  the  firm  for  anything  passing 
by  the  assignment.  It  appeared  by  the  proofs  and  findings  that  the  de- 
fendant's agents,  who  were,  as  may  be  fairly  inferred,  general  agents, 
knew,  at  the  time  of  issuing  the  policy  and  before,  all  the  facts  and 
circumstances  with  respect  to  the  individual  assignment  and  the  trans- 
fer of  that  interest  as  above  stated.  The  answer  to  the  defense,  based 
upon  these  facts,  is  twofold : 

( 1 )  That,  since  the  title  to  the  real  estate  held  by  a  partnership  is 
in  the  firm,  and  not  in  the  individual  members  of  it,  the  transfer  of 
the  interest  of  one  of  the  members,  before  the  insurance,  had  no  efifect 
upon  the  unconditional  and  sole  ownership  of  the  firm ;  that  an  as- 
signment by  one  partner  of  his  share  in  the  partnership  stock  simply 
transfers  any  interest  he  may  have  in  any  surplus  remaining  after  pay- 
ment of  the  firm  debts  and  the  settlement  of  the  firm  accounts.  Wheth- 
er the  purchaser  of  such  an  interest  takes  anything  whatever  by  the 
transfer  cannot  be  known  until  all  the  partnership  afifairs  have  been 
settled  and  adjusted.  Alenagh  v.  Whitwell,  52  N.  Y.  146,  11  Am. 
Rep.  683.  The  title  to  the  real  property,  which  was  the  subject  of  the 
insurance,  was  in  the  partnership  firm,  and  was  not  affected  by  the  as- 
signment of  one  of  the  members.  It  still  remained  firm  property,  since 
the  assignee  had  no  interest  in  it  as  such,  and  whether  the  sale  or 
transfer  by  the  individual  member  was  anything  more  than  a  mere 
form,  or  conveyed  anything  to  the  assignee,  must  depend  upon  the 
existence  of  a  surplus  after  the  partnership  affairs  are  adjusted.  It 
does  not  even  appear,  in  this  case,  that  there  would  then  be  any  sur- 
plus to  divide,  though  that  circumstance  cannot  be  regarded  as  material 


CHANGE    OF   INTEREST,  TITLE,  OR    POSSESSION  341 

upon  the  question  whether  such  a  transfer  by  a  member  affects  or 
changes  the  estate  or  interest  which  the  firm  has  in  the  partnership 
realty. 

(2)  That  general  agents  of  an  insurance  company  may  waive  stipula- 
tions and  provisions,  contained  in  the  policy,  with  respect  to  the  con- 
ditions upon  which  it  shall  have  inception  and  go  into  operation  as 
a  contract  between  the  parties,  by  delivering  it,  with  knowledge  of  all 
the  facts,  and  receiving  the  premium,  has  long  been  settled.  It  is  so 
obviously  just  that  a  party  to  a  written  contract  should  be  precluded 
from  defeating  it  by  asserting  conditions  and  stipulations  contained 
in  it  which  would  prevent  its  inception,  and  which  he  knew,  at  the  time 
he  delivered  it  and  accepted  the  benefits,  were  contravened  by  the  actual 
facts,  that  any  statement  of  the  reasons  upon  which  the  rule  rests  is 
no  longer  necessary.  The  principle  is  not  a  new  one,  and  it  has  not 
been  shaken  by  any  decisions  of  this  court  made  since  the  adoption  of 
the  standard  policy.  McNallv  v.  Insurance  Co.,  137  X.  Y.  389,  33 
N.  E.  475;  Forward  v.  Insurance  Co.,  142  X.  Y.  382,  37  X.  E.  615, 
25  L.  R.  A.  637. 

The  restrictions  inserted  in  the  contract  upon  the  power  of  the 
agent  to  waive  any  condition,  unless  done  in  a  particular  manner,  can- 
not be  deemed  to  apply  to  those  conditions  which  relate  to  the  in- 
ception of  the  contract,  when  it  appears  that  the  agent  has  delivered 
it,  and  received  the  premiums,  with  full  knowledge  of  the  actual  situa- 
tion. To  take  the  benefit  of  a  contract,  with  full  knowledge  of  all  the 
facts,  and  attempt  afterwards  to  defeat  it,  when  called  upon  to  perform, 
by  asserting  conditions  relating  to  those  facts,  would  be  to  claim  that 
no  contract  was  made,  and  thus  operate  as  a  fraud  upon  the  other 
party. 

It  appears,  from  the  findings,  that  on  the  20th  of  March,  1891,  about 
10  days  before  the  fire,  the  real  estate  which  was  the  subject  of  the 
insurance  was  sold  by  the  sheriff  under  an  execution  duly  issued  to  him 
against  the  firm,  and  a  certificate  of  sale  in  due  form  delivered  by  him 
to  the  purchaser,  one  Aurelia  O.  Wood ;  and  the  remaining,  and  per- 
haps most  important,  question  is  whether  this  sale  worked  such  a 
change  in  the  interest,  title,  or  possession  of  the  property  as  to  avoid 
the  policy,  within  the  meaning  of  the  conditions  to  which  reference  has 
been  made.  In  Walradt  v.  Insurance  Co.,  136  X.  Y.  375,  32  X.  E. 
1063,  32  Am.  St.  Rep.  7^2,  we  held  that,  when  the  subject  of  the  in- 
surance was  personal  property,  the  conditions  of  the  policv  were  not 
violated  by  the  mere  levy  of  an  execution  upon  the  goods  insured.  The 
reasoning  of  that  case,  however,  plainly  leads  to  the  conclusion  that 
it  would  be  otherwise  in  case  the  levy  had  been  followed  by  a  sale. 
The  sale  of  personal  property  upon  an  execution  divests  the  owner  of 
his  title  to  the  property  sold,  and  transfers  it  to  another.  But  what 
was  said  in  that  case  with  respect  to  the  effect  of  a  sale  upon  execution 
applies  to  personal  property.  There  was  no  question  in  the  case  with 
respect  to  the  effect  of  a  sale  of  real  estate,  and  nothing  was  decided 


342  THE  STANDARD   FIRE   POLICY 

upon  that  question.  The  effect  of  a  sale  of  real  estate  upon  execution 
is  declared  by  statute,  and  no  other  effect  can  be  given  to  it.  The  judg- 
ment debtor,  or  his  assignee,  or  his  creditors,  may  redeem  the  same 
within  15  months  thereafter,  and  the  right  and  title  of  the  judgment 
debtor  is  not  divested  by  the  sale  until  the  expiration  of  the  period  for 
redemption.  Code  Civ.  Proc.  §  1440.  During  that  time  the  debtor  is 
entitled  to  the  possession  and  use  of  the  rents  and  profits. 

At  the  time,  therefore,  that  the  property  in  question  was  destroyed 
by  fire,  the  interest,  title,  or  possession  of  the  insured  had  not  been 
changed.  The  statute  had  operated  to  postpone  the  effect  of  the  sale 
upon  the  interest,  title,  or  possession  of  the  owners  until  the  expiration 
of  the  period  for  redemption.  In  Browning  v.  Insurance  Co.,  71  N.  Y. 
508,  27  Am.  Rep.  86,  the  policy  contained  a  provision  that,  if  the  prop- 
erty be  sold  or  transferred,  or  any  change  take  place  in  the  title  or  pos- 
session, then,  in  either  such  case,  the  policy  shall  be  void.  The  in- 
sured entered  into  a  contract  in  writing  for  the  sale  of  the  premises, 
and  this  court  held  that  the  conditions  of  the  policy  were  not  violated. 
It  was  said  that  an  executory  contract  for  the  sale  of  the  property, 
without  change  of  possession,  did  not  work  a  breach  of  the  conditions 
against  a  sale  or  transfer  or  change  in  title  or  possession ;  that  such 
a  condition  applies  only  to  a  legal  transfer  which  divests  the  insured 
of  title  to  or  control  over  the  property.  Before  we  could  assent  to 
the  proposition  that  in  this  case  there  was  a  breach  of  the  conditions 
of  the  policy  by  the  sheriff's  sale,  we  would  be  compelled!  to  overrule 
numerous  cases  in  this  court  which,  in  principle,  decide  otherwise. 
Baley  v.  Insurance  Co.,  80  N.  Y.  21,  36  Am.  Rep.  570;  Cone  v.  In- 
surance Co.,  60  N.  Y.  619;  Haight  v.  Insurance  Co.,  92  N.  Y.  51,  55; 
Green  v.  Insurance  Co.,  82  N.  Y.  517. 

The  judgment  must  therefore  be  affirmed,  with  costs. ^^  All  concur, 
except  Gr<\y,  J.,  who  dissents  upon  the  ground  that  the  policy  was 
avoided  by  the  change  of  interest  effected  by  the  sale  of  the  property. 
Judgment  affirmed. 

20  Accord:  Greenlee  v.  North  British  «&  Merc.  Ins.  Co.,  102  Iowa,  427,  71 
N.  W.  534.  63  Am.  St.  Rep.  455  (1S97) ;  Hammel  v.  Qneens  Ins.  Co..  54  Wis. 
72,  11  N.  W.  349,  41  Am.  Rep.  1  (1SS2).  Compare  Collins  v.  London  Assiir. 
Corp.,  165  Pa.  298,  30  Atl.  924  (1895).  And  see,  generally,  New  v.  German 
Ins.  Co..  ante,  p.  15;  Kase  v.  Hartford  Fire  Ins.  Co..  ante,  p.  17:  Quarles 
V.  Clayton,  ante,  p.  10.  Effect  of  colorable  transfer  in  fraud  of  creditors, 
see  Forward  v.  Continental  Ins.  Co.,  ante,  p.  274. 


OTHER   INSURANCE  34 


VI.  Other  Insurance  ^^ 


STAGE  V.  HOME  INS.  CO.  OF  CITY  OE  NEW  YORK. 

(Supreme  Court  of  New  York.  Appellate  Division,  Fourth  Department,  1902. 
76  App.   Div.  50y,  78  N.  Y.  Supp.  555.) 

Action  by  Augustus  E.  Stage  against  the  Home  Insurance  Company 
of  the  City  of  New  York.  From  a  judgment  for  plaintiff,  defendant 
appeals. 

Spring,  J.  This  is  an  action  to  recover  on  a  fire  insurance  policy 
issued  by  the  defendant  to  the  plaintiff.  On  the  11th  of  June,  1900, 
the  plaintiff  owned  a  stock  of  goods  in  a  store  in  the  town  of  Critten- 
den, in  the  county  of  Erie,  and  the  same  was  insured  in  the  Queens 
&  Suffolk  Insurance  Company  in  the  sum  of  $2,800,  represented  by 
three  policies,  one  for  $800.  At  that  time  the  local  agent  of  that  com- 
pany at  Corfu,  near  Crittenden,  at  the  direction  of  the  home  com- 
pany, canceled  the  policy  of  $800,  and  at  his  request  to  the  local 
agent  of  the  defendant  the  policy  in  suit  was  issued  in  lieu  of  the 
one  canceled.  At  the  time  of  the  issuance  of  this  policy  by  the  de- 
fendant its  local  agent  was  apprised  of  the  existence  of  the  policies 
of  insurance  in  the  Queens  &  Suft'olk  Company.  One  of  these  poli- 
cies expired  December  11,  1900,  and  another  identical  in  form  and 
amount  was  issued  by  the  same  company  in  renewal  or  extension  of 
the  one  terminating.  On  the  1st  day  of  April,  1901,  and  while  the 
policy  in  controversy  was  apparently  in  force,  the  goods  insured  were 
totally  destroyed  by  fire,  and  the  defendant  is  resisting  payment. 

The  gist  of  the  controversy  arises  over  this  provision  in  the  policy : 
"This  entire  policy,  unless  otherwise  provided  by  agreement  in- 
dorsed hereon  or  added  hereto,  shall  be  void  if  the  insured  now  has 
or  shall  hereafter  make  or  procure  any  other  contract  of  insurance, 
whether  valid  or  not,  on  property  covered  in  whole  or  in  part  by 
this  policy." 

The  knowledge  of  the  local  agent  of  the  existence  of  the  outstand- 
ing policies  was  the  knowledge  of  the  defendant,  and  was  tantamount 
to  a  waiver  of  the  quoted  clause  in  the  policy.  Robbins  v.  Insurance 
Co.,  149  N.  Y.  477,  44  N.  E.  159;  Forward  v.  Insurance  Co.,  142 
N.  Y.  382,  37  N.  E.  615,  25  L.  R.  A.  637;  Skinner  v.  Norman, 
165  N.  Y.  565,  569,  59  N.  E.  309,  80  Am.  St.  Rep.  776.  If  the  de- 
fendant knew  of  the  other  insurance  when  it  entered  into  its  con- 
tract with  the  plaintiff',  and  accepted  the  premium  from  him,  it  can- 
not now,  after  his  goods  have  been  burned,  escape  payment  on  the 
ground  that  its  knowledge  was  not  evidenced  by  a  written  indorse- 

21  For  discussion  of  principles,  see  Vance  on  Insurance,  §  163.  See,  also, 
Cooley,  Briefs  on  tlie  Law  of  Insurance,  vol.  2,  pp.  1438-1454,  1831-1859. 


344"  THE  STANDARD  FIRE  POLICY 

ment  on  the  policy  or  other  written  waiver.  Thebaud  v.  Insurance 
Co.,  155  N.  Y.  516,  50  N.  E.  284;  Wood  v.  Insurance  Co.,  149  N. 
Y.  382,  44  N.  E.  80,  52  Am.  St.  Rep.  7?)Z ;  McElwain  v.  Insurance 
Co.,  50  App.  Div.  63,  65,  63  N.  Y.  Supp.  293 ;  Sternaman  v.  Same, 
170  N.  Y.  13,  23,  62  N.  E.  763,  57  L.  R.  A.  318,  88  Am.  St.  Rep.  625. 
Each  contract  involved  was  a  standard  policy,  and  contained  a 
clause  that  the  policy  "may  by  a  renewal  be  continued."  The  appel- 
lant's counsel  insists  that  by  accepting  a  new  policy  instead  of  a  re- 
newal certificate  extending  the  same  the  policy  in  suit  was  vitiated. 
We  apprehend  this  margin  is  too  narrow  to  be  successfully  main- 
tained. The  defendant  knew  that  as  part  of  its  contract  the  plaintiff 
was  permitted  to  continue  each  policy  in  force.  Whether  in  form 
that  extension  was  by  a  certificate  renewing  it  or  by  another  policy 
precisely  like  the  one  expiring  is  of  no  importance.  By  either  method 
the  contract  was  exactly  the  same.  The  controlling  feature  here  is 
that  the  second  policy  in  fact  was  a  renewal  or  continuation  of  the 
prior  insurance. 

In  Pitney  v.  Insurance  Co.,  65  N.  Y.  6,  there  was  a  clause  in  the 
policy  as  follows:  "If  any  other  insurance  has  been  or  shall  here- 
after be  made  upon  the  said  property,  and  not  consented  to  by  the 
company  in  writing  hereon,  then  this  policy  shall  be  null  and  void." 
A  new  policy  was  issued  in  effect  renewing  the  one  running  out. 
It  was  contended  in  that  case  that  the  renewal  was  a  new  contract, 
invalidating  the  policy  issued  by  the  defendant.  The  court  held  oth- 
erwise, using  this  language  at  page  26:  "A  renewal  is  in  one  sense 
a  new  contract,  but  it  is  not  'other'  insurance,  within  the  meaning 
of  the  policy.  It  is  but  a  continuation  of  an  existing  insurance.  It 
would  be  in  the  highest  degree  inconvenient  to  hold  that  notice 
must  be  given  on  every  renewal  to  other  insurers  on  the  theory  that 
it  was  a  new  insurance.  If  the  notice  of  the  original  insurance  is 
properly  given,  it  must  be  held  to  continue  through  all  true  renewals 
of  it." 

In  Brown  v.  Insurance  Co.,  18  N.  Y.  391,  the  like  principle  was 
enunciated,  and  in  that  case  nearly  three  weeks  intervened  the  ex- 
piration of  the  policy  and  the  taking  of  the  new  one,  which  was  in 
fact  proved  to  be  in  renewal  of  the  former  insurance.  There  is  no 
substantial  difference  between  the  clause  quoted  from  the  standard 
policy  and  that  which  was  the  subject  of  review  in  the  cases  cited, 
and  they  are  consequently  decisive  of  the  question  now  under  consid- 
eration. 

The  judgment  should  be  affirmed,  with  costs  to  the  respondent. 
Judgment  affirmed.^ ^ 

22  The  provision  as  to  other  insurance  is  substantially  the  same  in  the 
standard  forms  of  policy  prescribed  in  New  York,  Connecticut,  Louisiana, 
Michigan,  Missouri.  New  Jersey,  North  Carolina,  North  Dakota,  Pennsylvania, 
Rhode  Island,  and  Wisconsin.  In  Maine.  Massachusetts,  Minnesota,  New 
Hampshire,  and  South  Dakota  the  provision  does  not  contain  the  words 
"valid  or  not." 


OTHER   INSURANCE  345 


EDDY  V.  LONDON  ASSUR.  CORP. 

(Court  of  Appeals  of  New  York,  1^94.     143  N.  Y.  311,  38  N.  E.  307.  25  L. 

R.  A.   686.) 

Actions  by  Fred  C.  Eddy,  as  receiver  of  the  Syracuse  Screw  Com- 
pany, against  the  London  Assurance  Corporation  and  seven  other  in- 
surance companies,  on  poHcies  of  insurance  issued  by  such  com- 
panies to  the  plaintiff,  as  receiver,  on  property  formerly  owned  by 
the  screw  company.  Giles  Everson  was  insured  by  the  same  policies 
as  mortgagee,  as  his  interest  might  appear,  and  was  joined  as  de- 
fendant, in  order  that  the  rights  of  all  parties  might  be  decided  in 
one  action.  The  policies  contained  the  standard  mortgage  clause, 
which  provided  that  the  insurance  of  Everson's  interest  should  not  be 
invalidated  by  any  act  or  neglect  of  the  mortgagor  or  owner  of  the 
property.  The  plaintiff  failed  to  recover,  and  his  complaint  was  dis- 
missed in  each  action,  because  of  the  violation  of  the  provisions  in 
the  policies  in  regard  to  procuring  other  insurance.  From  a  judg- 
ment of  the  general  term  (65  Hun,  307,  20  N.  Y.  Supp.  216),  afifirming 
judgments  in  each  case  for  defendant  Everson,  the  insurance  com- 
panies appeal. 

Peckham,  J.-^  *  *  *  Another  question  arises  in  regard  to  the 
so-called  "contribution."  It  seems  that  the  plaintiff,  Eddy,  without 
the  consent  of  these  defendant  insurers,  procured  other  insurance 
upon  the  property.  This  additional  insurance  thus  procured  rendered 
the  policies  of  these  insurers  invalid  as  to  the  plaintiff.  They  con- 
tend, nevertheless,  that  in  arriving  at  the  proportion  of  the  loss  pay- 
able by  each  of  them  to  the  mortgagee,  this  other  insurance  should 
be  reckoned  as  part  of  the  insurance  on  the  property.  It  was  pro- 
cured by  plaintiff  without  the  consent  or  knowledge  of  the  mort- 
gagee, and  was  not  made  payable  in  any  event  to  him,  and  did  not 
insure  his  interest  in  the  property.  If  the  claim  of  these  defendant 
insurers  be  allowed,  the  effect  is  to  reduce  the  amount  which  each  is 
liable  to  pay  to  the  mortgagee,  and  thereby  to  lessen  his  total  re- 
covery, as  he  has  no  claim  under  the  other  and  additional  policies. 
The  clause  under  which  this  claim  is  made  provides  in  the  body  of 
the  policy  that  the  insurer  "shall  not  be  liable  for  a  greater  proportion 
of  any  loss  on  the  described  premises  than  the  amount  thereby  in- 
sured shall  bear  to  the  whole  insurance,  whether  valid  or  not." 

1  think  the  courts  below  were  right  in  rejecting  this  claim  of  the 
insurers.  Taken  in  connection  with  the  language  in  the  mortgage 
clause,  the  contract  is  quite  plain.  The  provision  in  the  latter  clause 
that  the  insurance  of  the  mortgagee  should  not  be  invalidated  by  any 
act  or'  neglect  of  the  owner  of  the  property  applies,  among  others, 
to  a  case  of  other  insurance  of  his  own  interest  by  the  owner  with- 
out the  knowledge  or  consent  of  the  mortgagee, 

2  3  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


346  THE  STANDARD   FIRE  POLICY 

The  effect  of  the  mortgagee  clause  hereinbefore  set  forth  is  to 
make  an  entirely  separate  insurance  of  the  mortgagee's  interest,  and 
he  takes  the  same  benefit  from  his  insurance  as  if  he  had  received  a 
separate  policy  from  the  company,  free  from  the  conditions  imposed 
upon  the  owners.  Where  the  company  agreed  that  the  mortgagee's 
insurance  should  not  be  "invalidated"  by  any  act  or  neglect  of  the 
owner  of  the  property,  it  was  not  intended  to  limit  the  application 
of  that  word  to  a  case  where  the  whole  policy  would  otherwise  be 
rendered  invalid.  The  plain  and  obvious  meaning  of  the  language 
is  that  the  insurance  of  the  mortgagee  should  not  be  affected  or  in 
any  wise  impaired  or  lessened  by  any  act  or  neglect  of  the  owner. 
Although  contained  in  the  same  policy  issued  to  the  owner,  yet  the 
insurer  and  the  mortgagee  were  nevertheless  entering  into  a  perfectly 
separate  contract  of  insurance,  by  which  the  mortgagee's  interest  alone 
was  to  be  insured,  and  it  would  be  most  natural  to  provide  that  no 
act  or  neglect  of  the  owner  should  invalidate — that  is,  impair — any 
portion  of  the  insurance  thus  separately  secured.  Can  it  for  a  moment 
be  supposed  that  a  mortgagee  would  otherwise  ever  consent  to  such 
a  contract?  His  desire  is  to  obtain  security,  and  to  that  end  he  in- 
sures his  interest  in  the  property.  Would  he  knowingly  consent  that 
this  security  should  be  liable  to  be  wholly  frittered  away  and  made 
valueless  by  the  action  of  the  owner,  unknown  to  him,  in  procuring 
insurance  upon  the  owner's  interest  in  the  property?  Would  any 
sane  man  agree  to  hazard  his  security  in  such  a  way?  Would  he 
agree  that  the  value  of  his  security  should  depend  upon  the  acts  of 
a  third  party  over  whom  he  had  no  control,  and  of  whose  acts  he 
might  be  wholly  ignorant?  The  statement  of  the  proposition  is  its 
best  refutation.  These  views  are  supported  by  both  of  the  opinions 
in  the  case  of  Hastings  v.  Insurance  Co.,  7Z  N.  Y.  141. 

There  is  some  difference  in  the  verbiage  of  the  clause  in  the  re- 
ported case  and  that  to  be  found  in  the  clause  under  examination 
here.  In  the  Hastings  Case  the  clause  as  to  contribution  contained 
the  proviso  that,  in  case  of  other  insurance,  the  assured  should  recover 
only  a  proportionate  sum  from  defendant  company.  The  owner  of 
the  property  had  mortgaged  it  to  plaintift"'s  testator,  and  had  subse- 
quently obtained  an  insurance  upon  his  own  interest  as  owner,  and 
subsequent  to  that  time  the  indorsement  in  favor  of  the  mortgagee 
was  made,  and  it  was  in  the  body  of  the  policy  issued  to  the  owner 
that  the  language  was  used  as  to  the  assured.  In  the  clause  here 
under  consideration  it  is  seen  that  the  word  "assured"  is  not  there, 
and  the  condition  is  that  in  case  of  other  insurance  the  company  shall 
not  be  liable  under  the  policy,  etc.  The  court  in  the  Hastings  Case 
thought  the  word  "assured"  referred  to  the  person  who  was  first  in- 
sured when  the  policy  was  issued,  and  was  not  transferred  to  the 
mortgagee  when  he  subsequently,  by  a  minute  placed  in  the  policy, 
was  made  an  assured  also.  This  is  very  true,  but  a  perusal  of  the 
whole  case  shows  that  the  controlling  idea  was  a  separate  insurance 


OTHER   INSURANCE  347 

of  the  mortgagee,  freed  from  the  conditions  attached  to  the  insur- 
ance of  the  owner,  and  not  to  be  impaired  or  weakened  by  any  act 
or  neglect  of  such  owner. 

Force  must  be  given  to  this  positive  language  of  the  contract,  and 
no  act  or  neglect  of  the  owner  can  be  permitted  to  invalidate — i.  e. 
impair  or  weaken  {72>  N.  Y.  at  page  149) — the  validity  of  the  agree- 
ment for  the  full  amount  named  in  the  policy.  By  taking  the  insur- 
ance in  the  manner  the  mortgagee  herein  did,  instead  of  taking  out  a 
separate  policy,  all  the  provisions  in  the  policy  which  from  their  nature 
would  properly  apply  to  the  case  of  an  insurance  of  the  mortgagee's 
interest  would  be  regarded  as  forming  part  of  the  contract  with  him, 
while  those  provisions  which  antagonize  or  impair  the  force  of  the 
particular  and  specific  provisions  contained  in  the  clause  providing  for 
the  insurance  of  the  mortgagee  must  be  regarded  as  ineffective  and 
inapplicable  to  the  case  of  the  mortgagee.  So  when  the  agreement  in 
regard  to  contribution,  contained  in  the  body  of  the  policy  issued  to 
the  owner,  is  compared  with  the  specific  statement  in  the  mortgage 
clause  that  his  insurance  shall  not  be  invalidated  by  any  act  or  neglect 
of  the  owner,  we  can  only  give  the  latter  due  force  by  holding  that 
the  insurance  of  the  mortgagee  is  not,  in  effect  or  substance,  to  be 
even  partially  invalidated, — i.  e.  reduced  in  amount, — and  to  that  extent 
impaired  and  weakened  by  any  act  of  the  owner  unknown  to  the 
mortgagee.  In  such  case  the  general  agreement  in  the  body  of  the 
policy  as  to  contribution  does  not,  and  was  not  intended  to,  apply. 
If  it  did,  then  the  special  and  particular  contract  in  the  mortgage 
clause  would  be  of  no  effect.  If  the  two  are  inconsistent,  the  special 
contract,  particularly  relating  to  the  mortgagee's  insurance,  must  take 
precedence  over  the  general  language  used  in  the  policy  issued  to  the 
owner.  For  these  reasons  the  claims  of  the  insurers  for  a  deduction 
in  the  an]ount  of  their  liability  cannot  be  allowed. 

As  to  three  of  the  policies,  the  mortgage  clause  itself  contained  the 
provision  that  the  company  was  only  to  be  liable  in  the  proportion 
which  the  sum  it  insured  should  bear  to  the  whole  amount  of  insur- 
ance on  the  property,  issued  to  or  held  by  any  party  or  parties  having 
an  insurable  interest  therein,  whether  as  owner,  mortgagee,  or  other- 
wise. What  meaning  is  to  be  attached  to  this  provision  after  taking 
into  consideration  the  language  heretofore  quoted  that  the  insurance 
of  the  mortgagee  will  not  be  invalidated  by  any  act  or  neglect  of  the 
owner  of  the  property? 

The  act  of  obtaining  this  additional  insurance  was  the  act  of  the 
owner,  and  it  was  unknown  to  the  mortgagee,  and  of  course  not  con- 
sented to  by  him.  The  additional  insurance  could  by  no  possibility 
benefit  him,  as  it  was  not  upon  any  interest  of  his  in  the  property.  He 
could  not,  therefore,  resort  to  any  of  these  additional  policies  for  his 
indemnity.  It  is  not  a  case  of  contribution  in  any  sense,  but  simply 
one,  on  the  insurers'  theory,  of  diminution  of  their  liability,  caused  by 
the  act  of  the  owner  and  unknown,  and  with  no  possible  corresponding 
benefit  to  the  mortgagee.    As  a  general  principle,  it  is  settled  that,  be- 


348  THE  STANDARD  FIRE  POLICY 

fore  this  apportionment  of  the  loss  between  different  companies  can  be 
demanded,  the  different  policies  must  have  been  upon  the  same  interest 
in  the  same  property  or  some  part  thereof.  Lowell  Manuf'g  Co.  v. 
Safeguard  Fire  Ins.  Co.,  88  N.  Y.  592.  Has  this  principle  been  changed 
by  this  contract?  Can  it  be  that  the  mortgagee  would  knowingly  con- 
sent to  a  diminution  of  this  liability  to  an  extent  which  might  leave 
it  of  no  value,  consequent  upon  a  secret  act  of  a  third  party,  and 
where  by  no  possibiHty  could  he  protect  his  security  from  such 
danger? 

All  the  reasoning  given  under  the  head  last  above  discussed  applies 
with  equal  force  here,  at  least  so  far  as  the  probabilities  of  entering 
into  such  a  contract  by  the  mortgagee  are  concerned.  It  is  clear 
that  the  only  object  of  the  mortgagee  is  to  obtain  a  security  upon 
which  he  can  rely,  and  this  object  is,  of  course,  also  plain  and  clear 
to  the  insurer.  Both  parties  proceed  to  enter  into  a  contract  with 
that  one  end  in  view.  In  order  to  make  it  plain  beyond  question,  the 
statement  is  made  that  no  act  or  neglect  of  the  owner  with  regard 
to  the  property  shall  invalidate  the  insurance  of  the  mortgagee.  When, 
in  the  face  of  such  an  agreement,  entered  into  for  the  purpose  stated, 
there  is  also  placed  in  the  instrument  a  provision  as  to  the  propor- 
tionate payment  of  a  loss,  we  think  the  true  meaning  to  be  extracted 
from  the  whole  instrument  is  that  the  insurance  which  shall  diminish 
or  impair  the  right  of  the  mortgagee  to  recover  for  his  loss  is  one 
which  shall  have  been  issued  upon  his  interest  in  the  property,  or  when 
he  shall  have  consented  to  the  other  insurance  upon  the  owner's  in- 
terest. This  may  not,  perhaps,  give  full  effect  to  the  strict  language 
of  the  apportionment  clause,  but,  if  full  effect  be  given  to  that  clause, 
and  it  should  be  held  to  call  for  the  consequent  reduction  of  the  li- 
ability of  the  insurers  in  such  a  case  as  this,  then  full  effect  is  denied 
to  the  important  and  material,  if  not  the  controlling,  clause  in  the 
contract,  which  provides  that  the  insurance  of  the  mortgagee  shall 
not  be  injuriously  "impaired  or  affected''  by  the  act  or  neglect  of  the 
owner.  As  used  in  these  mortgage  clauses,  this  is  the  meaning  of 
the  word  "invalidate."    Hastings  v.  Insurance  Co.,  73  N.  Y.  149. 

We  must  strive  to  give  effect  to  all  the  provisions  of  the  contract, 
and  to  enforce  the  actual  meaning  of  the  parties  to  it,  as  evidenced 
by  all  the  language  used  within  the  four  corners  of  the  instrument. 
We  are  also  at  liberty  to  consider  the  purpose  for  which  the  contract 
was  executed,  where  that  purpose  plainly  and  necessarily  appears 
from  a  perusal  of  the  whole  paper.  That  construction  will  be  adopted 
in  the  case  of  somewhat  inconsistent  provisions  which,  while  giving 
some  effect  to  all  of  them,  will  at  the  same  time  plainly  tend  to 
carry  out  the  clear  purpose  of  the  agreement ;  that  purpose  which  it 
is  obvious  all  the  parties  thereto  were  cognizant  of  and  intended  by 
the  agreement  to  further  and  to  consummate.  There  is  no  equity  in 
this  claim  on  the  part  of  the  insurers,  and  we  think,  from  a  perusal 
of  the  whole  clause  in  the  policy,  that  it  was  not  intended  to,  and 
that  it  does  not,  cover  such  claim. 


OTHER   INSURANCE  349 

The  judgment  of  the  supreme  court  must  be  affirmed,  with  costs 
in  each  case.  All  concur,  except  Andrews,  C.  [.,  not  sitting.  Judg- 
ment affirmed. 


HAYES  V.  MILFORD  MUT.  FIRE  IXS.  CO. 

(Supreme  Judicial  Court  of  Massachusetts,  189S.     170  Mass.  492.  49  N.  E.  754.) 

Action  by  Clarence  H.  Hayes  against  the  Milford  jMutual  Fire  In- 
surance Company  to  recover  damages  for  breach  of  contract.  Judg- 
ment was  ordered  for  defendant,  and  plaintiff  appeals. 

Lathrop,  J.-*  *  *  *  'phg  policy  in  suit  contains,  among  the 
printed  clauses  after  the  rider,  the  following :  "This  policy  shall  be  void 
*  *  *  if  the  insured  now  has,  or  shall  hereafter  make,  any  other 
insurance  on  the  said  property,  without  the  assent  in  writing  or  in 
print  of  the  company."  The  plaintiff,  as  the  agreed  facts  state,  "on 
or  about  October  29,  1895,"  obtained  a  policy  from  the  Citizens'  Mu- 
tual Fire  Insurance  Company,  of  Providence,  R.  I.,  and  on  November 
4,  1895,  obtained  another  policy  from  the  Security  Mutual  Fire  In- 
surance Company,  also  of  Providence.  Each  policy  contained  a  rider 
similar  to  that  in  the  policy  in  suit,  and  each  also  contained  the  fol- 
lowing printed  clause:  "This  entire  policy,  unless  otherwise  provided 
by  agreement  indorsed  hereon  or  added  hereto,  shall  be  void  if  the 
insured  now  has  or  shall  hereafter  make  or  procure  any  other  con- 
tract of  insurance,  whether  valid  or  not,  on  property  covered  in 
whole  or  in  part  by  this  policy." 

It  is  clear,  under  our  decisions,  that  neither  of  these  policies  af- 
fords any  defense  to  the  action.  If  the  Citizens'  Company's  policy 
was  issued  before  the  policy  in  suit,  it  became  void  by  its  terms,  when 
the  defendant  issued  its  policy.  Forbush  v.  Insurance  Co.,  4  Gray,  337. 
If  it  was  issued  subsequently,  as  was  the  policy  of  the  security  com- 
pany, for  the  same  reason  neither  it  nor  the  policy  of  the  latter  com- 
pany took  eft'ect.  Jackson  v.  Insurance  Co.,  23  Pick.  418,  34  Am.  Dec. 
69;  Clark  v.  Insurance  Co.,  6  Cush.  342,  53  Am.  Dec.  44;  Hardy  v. 
Insurance  Co.,  4  Allen,  217;  Thomas  v.  Insurance  Co.,  119  Mass.  121, 
20  Am.  Rep.  317. 

The  fact  that  the  plaintiff  has  a  suit  pending  against  the  Citizens' 
Insurance  Company  is  immaterial.  In  Thomas  v.  Insurance  Co.,  ubi 
supra,  the  plaintiff'  had  received  payment  under  the  subsequent  policy, 
which  policy  was  found  to  be  invalid,  and  this  was  held  not  to  aff'ect 
the  plaintiff's  rights  against  the  defendant.     *     *     *     Reversed.-^ 

2  4  Part  of  the  opinion  is  omitted. 

2  5  The  difference  between  the  pi-ovisions  in  regard  to  other  insurance  in 
the  standard  forms  of  policy  prescribed  in  Massachusetts  and  in  Rhode  Is- 
land is  pointed  out  in  note  22,  p.  374. 

But  see  Funke  v.  Minnesota  i'armers'  Mut.  Fire  lus.  Ass'n,  29  Minn.  347, 
13  N.  W.  1G4,  43  Am.  Rep.  21G  (18S2). 


350  THE  STANDARD   FlUE  POLICY 


VII.  Increase  of  Risk  2« 


FIRST  CONGREGATIONAL  CHURCH  OF  ROCKLAND  v. 
HOLYOKE  MUT.  FIRE  INS.  CO. 

(Supreme  Judicial  Court  of  Massachusetts,  1893.     158   Mass.  475,  33   N.  E. 
572,  19  L.  R.  A.  587,  35  Am.   St.  Kep.  508.) 

Actions  by  the  First  Congregational  Church  of  Rockland  against  the 
Holyoke  Mutual  Fire  Insurance  Company,  and  five  other  companies, 
on  fire  insurance  policies.  There  was  a  general  verdict  for  plaintiff 
directed  by  the  court  on  special  verdicts  returned  by  the  jury. 

Knowlton,  J.-'^  The  policies  of  insurance  sued  on  in  these  six 
cases  are  all  alike  in  containing  provisions  which  are  relied  on  in  de- 
fense,  and   which    are   as    follows :     "This    policy   shall    be   void    if, 

*  *     *     without  the  assent  in  writing  or  in  print  of  the  company, 

*  *  *  the  situation  or  circumstances  affecting  the  risk  shall,  by 
or  with  the  knowledge,  advice,  agency,  or  consent  of  the  insured,  be 
so  altered  as  to  cause  an  increase  of  such  risk ;  *  *  *  or  if  cam- 
phene,  benzine,  naphtha,  or  other  chemical  oils  or  burning  fluids  shall 
be  kept  or  used  by  the  insured  on  the  premises  insured,  except  that 
what  is  known  as  refined  petroleum,  kerosene,  or  coal  oil  may  be  used 
for  lighting,"  etc.  The  property  insured  was  a  church  edifice  built 
of  wood,  not  clapboarded,  but  sheathed  horizontally  with  grooved  and 
tongued  sheathing,  closely  matched  together,  and  painted  and  sanded 
on  the  outside.  The  paint  had  peeled  and  curled,  and  at  the  time  of 
the  fire  the  plaintiff  was  repainting  the  building.  Three  trustees  had 
"the  control  and  care  of  all  the  real  estate  belonging  to  the  church," 
and  were  authorized  to  provide  for  its  insurance  and  repairs.  They 
arranged  with  one  Gilson,  a  painter,  to  paint  the  outside  of  the  build- 
ing by  the  day  at  the  rate  of  $3  per  day  for  himself,  and  $2.75  per 
day  for  his  men,  the  trustees  furnishing  the  paint  stock,  and  he  fur- 
nishing his  own  brushes,  ladders,  and  other  tools  of  trade.  It  was 
also  arranged  that  he  was  to  burn  off  the  old  paint  with  a  torch  or 
some  such  implement,  preparatory  to  repainting.  He  procured  for 
the  purpose  a  naphtha  torch.     *     *     * 

The  evidence  tended  to  show  that  the  trustees  knew  that  Gilson 
was  to  burn  off  the  paint,  and  left  it  to  him  to  determine  exactly  in 
what  way  he  would  do  it.  One  or  more  of  them  saw  the  torch 
which  was  used  before  he  began  to  use  it,  and  they  repeatedly  saw 

2  6  For  discussion  of  principles,  see  Vance  on  Insurance,  §  165.  See,  also, 
Cooler.  Briefs  on  the  Law  of  Insurance,  vol.  2,  pp.  1492,  1606,  1623,  1636, 
1643, 'leSl,  1781-1784. 

2T  Part  of  the  opinion  is  omitted. 


INCREASE    OF    RISK  351 

him  using  it  before  the  fire.  When  the  work  had  been  going  on 
about  four  weeks,  the  torch,  according  to  the  testimony,  having  been 
used  daily  during  all  the  working  days,  the  building  caught  fire  on 
the  edge  of  a  board  where  there  was  a  crack  and  where  the  torch 
had  just  been  used,  and  was  entirely  consumed.  This  was  on  the 
16th  day  of  July.  1890,  and  there  was  evidence  that  the  weather  was 
hot,  and  the  boards  very  dry.  There  was  also  evidence  that,  as  a 
protection  against  fire,  a  pail  of  water  was  kept  on  hand  while  the 
work  was  going  on.  The  evidence  tended  strongly  to  show  that  the 
danger  of  a  conflagration  was  greatly  increased  by  the  use  of  th2 
naphtha  torch  on  the  dry,  inflammable,  soft  pine  boards,  with  their 
shrunken  joints. 

If  the  risk  was  increased  by  the  use  of  the  torch,  it  seems,  on  the 
undisputed  facts,  that  it  was  by  the  agency  and  with  the  knowledge 
and  consent  of  the  insured,  for  the  officers  represented  the  plaintiff  in 
the  management  of  the  property,  and  saw  the  torch  in  use,  and  they 
authorized  the  use  of  it  before  the  work  was  begun.  Bank  v.  Cush- 
man,  121  Mass.  490.  Gilson  was  their  agent,  acting  in  the  exercise 
of  his  discretion  and  with  full  authority  in  procuring  and  using  the 
naphtha,  and  on  the  uncontradicted  evidence  the  use  of  naphtha 
by  him  was  a  use  of  it  by  the  insured,  within  the  meaning  of  the 
provision  quoted  from  the  policies.  Was  a  change  of  this  kind  in- 
creasing the  risk,  with  the  knowledge,  agency,  and  consent  of  the  in- 
sured, an  alteration  of  "the  situation  or  circumstances  affecting  the 
risk,"  within  the  meaning  of  those  words  in  the  policies?  These 
words  imply  something  of  duration,  and  a  casual  change  of  a  tem- 
porary character  would  not  ordinarily  render  the  policy  void  under 
this  provision.  But  this  change  had  existed  continuously  during  the 
working  hours  of  every  day  for  nearly  a  month,  and  the  work  was 
not  nearly  done  when  it  was  interrupted  by  the  fire.  We  are  of 
opinion  that  the  change  of  the  condition  was  sufficiently  long  con- 
tinued to  be  deemed  a  change  in  "the  situation  or  circumstances  affect- 
ing the  risk."  In  the  case  of  Lyman  v.  Insurance  Co.,  14  Allen,  329, 
it  was  held  that  an  alteration  of  a  building  which  increased  the  risk 
for  three  weeks  was  enough  to  render  the  policy  void  under  a  similar 
clause. 

We  find  no  evidence  that  naphtha  was  kept  on  the  premises.  The 
word  "kept,"  as  used  in  the  policy,  implies  a  use  of  the  premises  as 
a  place  of  deposit  for  the  prohibited  articles  for  a  considerable  period 
of  time.  See  Williams  v.  Insurance  Co.,  31  Me.  219;  O'Xiel  v. 
Insurance  Co.,  3  N.  Y.  122;  W'illiams  v.  Insurance  Co.,  54  N.  Y.  569, 
13  Am.  Rep.  620;  Mears  v.  Insurance  Co.,  92  Pa.  15,  37  Am.  Rep. 
647;  Putnam  v.  Insurance  Co.  (C.  C.)  18  Blatchf.  368,  4  Fed.  753. 
For  nearly  four  weeks  naphtha  was  used  within  a  few  inches  of  the 
outer  wall  of  the  building  to  produce  the  flame  which  was  brought  in 
contact  with  the  building.  It  would  be  a  narrow  and  unreasonable 
construction  of  the  policies,  in  reference  to  the  purposes  for  which 


352  THE  STANDARD   FIRE   POLICY 

the  words  were  inserted,  to  say  that  the  use  of  naphtha  was  not  "on 
the  premises,"  because  while  in  liquid  form  it  was  a  few  inches  out- 
side of  the  wall,  when  it  was  made  to  produce  an  eflfect  directly  on 
the  premises  by  burning  it  in  the  form  of  gas,  and  directing  it  against 
the  building. 

On  the  undisputed  facts,  as  stated  in  the  bill  of  exceptions,  the 
only  ground  on  which  the  plaintiff  could  fairly  ask  to  present  a  ques- 
tion to  the  jury  is  that  the  use  of  the  naphtha  and  the  change  in 
conditions  afifecting  the  risk  occurred  through  making  ordinary  re- 
pairs in  a  reasonable  and  proper  way,  and  that  in  the  provisions 
quoted  from  the  policies  there  is  an  implied  exception  of  what  is 
done  in  making  ordinary  repairs.  It  is  generally  held  that  such  pro- 
visions are  not  intended  to  prevent  the  making  of  necessary  repairs, 
and  the  use  of  such  means  as  are  reasonably  required  for  that  pur- 
pose. O'Niel  V.  Insurance  Co.,  3  N.  Y.  122;  Dobson  v.  Sotheby, 
Moody  &  M.  90;  Franklin  F.  Ins.  Co.  v.  Chicago  Ice  Co.,  36  Md.  102, 
11  Am.  Rep.  469;  Billings  v.  Insurance  Co.,  20  Conn.  139,  50  Am. 
Dec.  277;  Mears  v.  Insurance  Co.,  92  Pa.  15,  Z7  Am.  Rep.  647;  Wil- 
liams V.  Insurance  Co.,  31  Me,  219;  Putnam  v.  Insurance  Co.  (C.  C.) 
18  Blatchf.  368,  4  Fed.  753. 

Both  parties  to  a  contract  for  insurance  must  be  presumed  to  ex- 
pect that  the  property  will  be  preserved  and  kept  in  a  p'oper  con- 
dition by  making  repairs  upon  it.  Policies  on  buildings  are  often  is- 
sued for  a  term  of  five  years  or  more.  The  making  of  ordinary  re- 
pairs in  a  reasonable  way  may  sometimes  increase  the  risk,  more  or 
less,  while  the  work  is  going  on,  or  involve  the  use  of  an  article 
whose  use  in  a  business  carried  on  in  the  building  is  prohibited  by 
the  policy.  In  the  absence  of  an  express  stipulation  to  that  effect,  a 
contract  of  insurance  should  not  be  held  to  forbid  the  making  of 
ordinary  repairs  in  a  reasonably  safe  way,  and  provisions  like  these 
we  are  considering  should  not  be  deemed  to  apply  to  an  increase  of 
risk,  or  to  a  use  of  an  article  necessary  for  the  preservation  of  the 
property.  We  are  therefore  of  opinion  that  if  the  use  of  naphtha 
at  the  time,  and  in  the  manner  in  which  it  was  used,  was  reasonable 
and  proper,  in  the  repair  of  the  building,  having  reference  to  the  dan- 
ger of  fire  as  well  as  to  other  considerations,  it  would  not  render  the 
policies  void. 

But  the  questions  submitted  to  the  jury  on  the  answers  to  which 
verdicts  were  ordered  for  the  plaintiff  did  not  sufficiently  present  the 
matters  of  fact  in  issue.  The  only  question  bearing  on  the  most 
vital  part  of  the  issue  was  as  follows :  "Was  the  method  used  the 
method  ordinarily  pursued  to  remove  paint  on  the  outside  of  a  build- 
ing, preparatory  to  scraping  it  off  to  repaint  it?"  The  verdicts  ren- 
dered on  an  affirmative  answer  to  this  question  assumed  that  the 
removal  of  the  paint  from  this  building  was  reasonably  necessary  to 
the  repair  of  the  building.  It  also  assumed  that  this  building,  in 
leference  to  the  danger  from  moving  the  flaming  torch  all  over  its 


INCREASE   OF   RISK  353 

external  surface,  was  like  ordinary  buildings.  Many  buildings  are 
built  of  brick,  and  painted  on  the  outer  walls.  Many  others  are  clap- 
boarded  in  such  a  way  as  to  make  a  very  close,  tight  covering.  If 
this  is  the  method  ordinarily  pursued  when  paint  is  to  be  removed 
from  the  outside  of  a  building,  it  does  not  follow  that  it  is  ordinarily 
pursued  when  the  building  is  covered  with  soft  pine  sheathing,  tongued 
and  grooved,  and  put  on  horizontally,  and  when,  at  the  time  of  doing 
the  work,  the  weather  is  very  hot  and  dry,  and  the  boards  shrunken 
so  that  in  some  places  there  are  cracks. 

Gilson  testified  that,  ahhough  he  had  been  a  house  painter  in  Rock- 
land 25  years,  he  had  never  burned  off  paint  from  the  outside  of  a 
building  before.  The  architect  who  was  consulted  by  the  plaintiff  in 
regard  to  repairs  advised  removing  the  old  paint  by  the  application 
of  a  paint  remover,  which  was  a  preparation  to  be  applied  by  a 
brush  or  a  sponge.  The  use  of  naphtha  and  the  increase  of  risk 
by  an  alteration  of  the  circumstances  affecting  it  were  permitted  under 
the  implied  exception  only  when  reasonably  required  for  the  making 
of  repairs.  If  it  was  unreasonable  to  use  naphtha  under  the  cir- 
cumstances, at  the  time  and  in  the  manner  disclosed  by  the  evidence, 
the  use  was  not  within  the  exception,  and  the  policies  were  avoided. 
The  question  for  the  jury  was  whether  the  defendants,  if  familiar 
with  the  condition  of  the  building  and  the  methods  usually  adopted  in 
making  repairs,  should  have  contemplated  when  they  issued  the  policies 
that  the  plaintiff'  corporation  would  burn  off'  the  paint  at  such  a  time 
and  in  such  a  way  as  it  did.  Was  such  a  use  of  naphtha  a  reasonably 
safe  and  proper  way  of  making  repairs  on  this  building,  under  the 
circumstances?  The  questions  submitted  to  the  jury  were  not  equiva- 
lent to  these. 

As  bearing  on  the  question  whether  the  use  of  a  naphtha  torch 
would  increase  the  risk,  the  defendants  might  show,  if  they  could,  by 
an  expert,  in  regard  to  the  rates  of  premium  for  fire  insurance,  that 
the  rates  on  a  building  whose  paint  was  to  be  removed  from  the  out- 
side by  the  use  of  such  a  torch  would  be  higher  than  if  there  was  to 
be  no  such  use.  The  relative  rates  usual  for  insurance  under  different 
circumstances  are  treated  as  facts  which  a  jury  may  consider  in  deter- 
mining the  degree  of  the  risk.  Luce  v.  Insurance  Co.,  105  Mass. 
297-301,  7  Am.  Rep.  522;  Webber  v.  Railroad,  2  ?\Ietc.  147;  Cornish 
v.  Insurance  Co.,  74  X.  Y.  295 ;  Hartman  v.  Insurance  Co.,  21  Pa. 
466;  Insurance  Co.  v.  Rowland,  66  :\ld.  237,  7  Atl.  257.  *  *  * 
Verdicts  set  aside. -^ 

28  Compare  Smith  v.  Insurance  Co.,  107  Mich.  270,  65  N.  W.  236,  30  L.  R. 
A.  368  (1895).  And  see  Aeugier  v.  Western  Assur.  Co.,  10  S.  D.  82.  71  N.  W. 
761.  66  Am.  St.  Rep.  685  (1897),  holding  that  negligence  of  the  insured  in  the 
use  of  kerosene  to  light  a  fire  in  a  stove  was  not  within  the  clause  as  to 
increase  of  risk.  See,  also,  Straker  v.  Phenix  Ins.  Co..  101  Wis.  413.  77  N. 
W.  752  (1898),  holding  that  the  erection  of  a  building  adjoining  the  insured 

CooLEY  Ins. — 23 


354  THE  STANDARD  FIRE  POLICY 


VIII.  Assignments  ^' 


BREEYEAR  et  al.  v.  ROCKINGHAM  FARMERS'  MUT.  FIRE 

INS.  CO. 

(Supreme   Court  of  New  Hampshire,  1902.     71  N.  H.  445,  52  Atl.  860.) 

Action  by  Joseph  Breeyear  and  others  against  the  Rockingham 
Farmers'  Alutual  Fire  Insurance  Company.  Case  transferred  on 
agreed  facts. 

August  23,  1897,  Breeyear  took  out  a  policy  in  the  defendant  com- 
pany insuring  him  against  loss  by  fire  in  the  sum  of  $700  upon  his 
buildings.  Dearborn  had  a  mortgage  upon  the  property  to  secure  the 
payment  of  $700,  and  the  policy  was  made  payable  to  him  as  mort- 
gagee in  case  of  loss  as  his  claim  might  appear.  November  26,  1897, 
Dearborn  sold  and  transferred  the  mortgage  to  Louise  Beaudry,  and 
assigned  his  right  in  the  insurance,  as  follows:  "I  hereby  assign  my 
right  as  mortgagee  to  Louise  Beaudry."  March  29,  1898,  Beaudry 
borrowed  $400  of  the  Pittsfield  Savings  Bank,  and  pledged  the  Dear- 
born mortgage  as  security,  delivering  therewith  to  the  bank  the  policy 
of  insurance  with  the  following  indorsement  upon  it,  signed  by  her : 

"I  hereby  assign  my  right  to  ."     The  bank  has  held  the  policy 

ever  since.  June  23,  1898,  Breeyear  conveyed  the  property  to  Beau- 
dry. June  5,  1899,  Beaudry  took  out  a  policy  in  the  Granite  State 
Fire  Insurance  Company  insuring  her  against  loss  by  fire  in  the  sum 
of  $700  on  the  same  buildings.  She  did  not  disclose  to  the  company 
the  existence  of  the  prior  insurance.  The  buildings  were  destroyed 
by  fire  April  21,  1900.  No  notice  of  the  above-mentioned  transfers, 
or  of  the  conveyance  of  the  property  from  Breeyear  to  Beaudry,  or 
of  the  subsequent  insurance,  was  given  to  the  defendants  prior  to  the 
fire,  and  they  had  no  knowledge  of  the  same.  The  defendants'  poli- 
cy contained  a  provision  that  it  should  be  void  if,  without  the  assent 
in  writing  or  in  print  of  the  company,  the  insured  had  other  insur- 


preraises  was  an  increase  of  risk  within  the  policy,  and  avoided  the  insur- 
ance if  it  was  within  the  knowledge  of  the  insured,  though  not  within  his 
control. 

The  provision  relating  to  increase  of  risk  is  substantially  the  same  in  the 
standard  forms  of  policy  adopted  in  New  York,  Connecticut,  Louisiana.  Mich- 
igan. Missouri,  New  Jersey,  North  Carolina,  North  Dakota.  Pennsylvania, 
Rhode  Island,  and  Wisconsin.  In  Minnesota.  Massachusetts,  Maine,  and  New 
Hampshire  the  provision  is:  "If  the  situation  or  circumstances  affecting  the 
risk  *  *  *  shall  be  so  altered"  as  to  increase  the  risk.  In  South  Dakota 
the  increase  of  risk  must  be  occasioned  by  the  agency  or  act  of  the  insured. 

2  0  For  discussion  of  principles,  see  Vance  on  Insurance.  §  168.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  pp.  1859-1867. 


ASSIGNMENTS  355 

ance  on  the  property  at  the  time  of  loss,  or  if,  without  such  assent, 
the  property  should  be  sold  or  the  policy  should  be  assigned. 

Chase,  J.^°  The  assignments  by  Dearborn  to  Beaudry  and  by 
Beaudry  to  the  bank  were  not  assignments  of  the  policy,  but  of  the 
assignor's  right  as  mortgagee  to  the  insurance  in  case  of  loss  as  pro- 
vided in  the  policy.  The  object  of  the  provision,  which  prohibited  an 
assignment  of  the  policy  without  the  assent  of  the  company,  was  to 
prevent  an  increase  of  the  moral  risk  by  the  substitution  of  a  person 
for  the  insured  in  whose  custody  and  care  the  property  would  be  more' 
likely  to  be  burned.  The  assignments  made  no  such  substitution. 
Breeyear  continued  to  be  the  owner  and  custodian  of  the  property 
until  he  conveyed  it  to  Beaudry,  nearly  three  months  after  the  date 
of  the  last  assignment.  The  assignments  did  not  conflict  with  the 
terms  or  the  purpose  of  this  provision,  and  afford  no  defense  to  the 
bank's  claim.  Whiting  v.  Burkhardt,  178  ]\Iass.  535,  60  N.  E.  1,  52 
L.  R.  A.  788,  86  Am.  St.  Rep.  503 ;  Alay,  Ins.  §  379. 

The  conveyance  of  the  property  by  Breeyear  to  Beaudry,  without 
a  corresponding  assignment  of  the  policy  and  an  assent  thereto  in 
writing  or  in  print  by  the  defendants,  was  a  violation  of  the  provision 
of  the  policy  relating  to  that  subject,  and  rendered  the  policy  void 
as  against  Breeyear  and  his  grantee.  It  would  also  render  it  void  as 
against  the  bank  were  it  not  for  the  provision  protecting  the  rights  of 
the  mortgagee.  Without  the  latter  provision,  as  the  bank  is  not  an 
assignee  of  the  policy  but  only  a  payee  of  the  insurance  in  case  of 
loss,  it  would  have  to  rely  wholly  upon  the  rights  of  the  insured,  and 
would  be  chargeable  with  the  consequences  of  his  acts  upon  the  va- 
lidity of  the  policy.  Baldwin  v.  Insurance  Co.,  60  N.  H.  164;  Hall 
V.  Association,  64  X.  H.  405.  13  Atl.  648.  But  the  provision  refer- 
red to,  in  unambiguous  terms,  differentiates  the  mortgagee's  rights 
from  those  of  the  insured,  and  places  them  beyond  the  power  of  the 
latter  to  imperil.  It  is  as  follows:  "If  this  policy  shall  be  made  pay- 
able to  a  mortgagee  of  the  insured  real  estate,  no  act  or  default  of 
any  person  other  than  such  mortgagee  or  his  agents  or  those  claim- 
ing under  him,  shall  affect  such  mortgagee's  right  to  recover  in  case 
of  loss  on  such  real  estate."  The  policy  was  made  payable  to  a  mort- 
gagee. The  insured  is  a  person  other  than  the  "mortgagee  or  his 
agents  or  those  claiming  under  him."  The  bank,  as  assignee  of  Dear- 
born's rights  through  the  intermediate  assignments  to  and  from  Beau- 
dry, claims  under  Dearborn,  the  mortgagee  of  the  insured  real  es- 
tate named  in  the  policy.  The  bank  is  a  mortgagee  of  such  real  es- 
tate, within  the  meaning  of  the  provision.  All  the  conditions  of  the 
provision  being  fulfilled,  it  applied  and  prevented  the  act  of  Breeyear 
in  conveying  the  property  to  Beaudry  from  having  anv  effect  upon  the 
bank's  rights.  Badger  v.  Platts.  68  N.  H.  222.  44  Atl.  296.  7Z  Am. 
vSt.  Rep.  572;    Whiting  v.  Burkhardt,  178  Mass.  535,  60  N.  E.  1,  52 

3  0  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


356  THE  STANDARD   FIRE   POLICY 

Iv.  R.  A.  788,  86  Am.  St.  Rep.  503.  It  also  rendered  Beaudry's  act 
in  procuring  other  insurance  without  the  defendants'  consent  harm- 
less so  far  as  the  bank  is  concerned.     *     *     *  ^^ 


IX.  Explosive  and  Inflammable  Substances 


32 


YOCH  V.  HOME   MUT.   INS.  CO. 

(Supreme  Court  of  California.  1S96.     Ill  Cal.  503,  44  Pac.  ISO.  34  L.  R. 

A.   857.) 

Action  by  Joseph  Yoch  against  the  Home  Mutual  Insurance  Com- 
pany.    There  was  a  judgment  for  plaintiff,  and  defendant  appeals. 

Harrison,  J.^^  The  defendant  issued  its  policy  of  insurance  against 
fire  to  Mrs.  W.  H.  Brooks,  the  assignor  of  the  plaintiff,  in  the  sum 
of  $4,000,  upon  a  frame  building  occupied  as  a  country  store,  and  also 
upon  household  furniture  and  the  stock  of  merchandise,  "such  as  is 
usually  kept  in  country  stores,"  while  contained  in  said  building.  Be- 
fore the  expiration  of  the  policy  the  insured  property  was  totally  de- 
stroyed, and  the  present  action  is  brought  to  recover  for  the  loss 
thereby  sustained.  The  defendant  alleged,  as  grounds  of  defense, 
that  the  insured  kept  for  sale  and  allowed  gasoline  upon  the  premis- 
es, in  violation  of  the  terms  and  conditions  of  the  policy.     *     *     * 

In  the  insurance  part  of  the  policy  the  defendant  insured  Mrs. 
Brooks  for  the  term  of  one  year  against  all  direct  loss  or  damage  by 
fire,  "except  as  hereinafter  provided."  and  intermediate  this  part  of 
the  policy  and  the  printed  conditions  and  limitations  was  written, 
with  pen  and  ink,  the  description  of  the  property  upon  which  the  in- 
surance was  made.  One  of  these  printed  conditions  was  as  follows: 
"This  entire  policy,  unless  otherwise  provided  by  agreement  indorsed 
herein  or  added  hereto,  shall  be  void  *  *  *  jf  (any  usage  or 
custom  of  trade  or  manufacture  to  the  contrary  notwithstanding) 
there  be  kept,  used,  or  allowed  on  the  above-described  premises  ben- 
zine, benzole,  gasoline,  Greek  fire,  etc."  Testimony  w^as  given  at  the 
trial  tending  to  show  that  gasoline  is  one  of  the  articles  of  merchan- 
dise usually  kept  in  country  stores,  but  that  it  is  customary  to  keep 
it  in  a  room  or  building  by  itself.     It  was  also  shown  that,  during 

31  See,  also.  New  v.  German  Ins.  Co.,  ante,  p.  15,  aud  Kase  v.  Hartford 
Fire  Ins.  Co.,  ante,  p.  17. 

The  standard  forms  of  policy  used  in  the  various  states  contain  substan- 
tially the  same  provision  prohibiting  assignment  of  the  policy  before  loss. 

3  2  For  discussion  of  principles,  see  Vance  on  Insurance,  §  170.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  p.  16S7. 

3  3  Part  of  the  opinion  is  omitted. 


EXPLOSIVE   AND   INFLAMMABLE    SUBSTANCES  357 

the  month  prior  to  the  fire,  the  insured  would,  in  the  daytime,  bring 
Sinall  quantities  of  gasoHne — one  or  two  cans — from  a  building  on 
another  lot,  which  was  used  for  storing  it,  into  a  room  within  the  in- 
sured building,  and  adjacent  to  the  store,  for  the  purpose  of  selling 
it  at  retail  to  her  customers.     *     *     * 

A  contract  of  insurance  is  to  be  interpreted  by  the  same  rules  as 
is  any  other  contract.  It  must  be  so  interpreted  as  to  give  eiTect  to 
the  mutual  intention  of  the  parties  as  it  existed  at  the  time  of  con- 
tracting, so  far  as  the  same  is  ascertainable.  If  it  is  reduced  to  writ- 
ing, the  intention  of  the  parties  is  to  be  ascertained  from  the  writing 
alone,  if  possible.  The  whole  contract  is  to  be  taken  together.  When 
it  is  partly  written  and  partly  printed,  the  written  parts  control  the 
printed  parts,  and,  if  there  is  any  repugnancy  between  the  two,  the 
printed  part  must  be  disregarded.  It  may  be  explained  by  reference 
to  the  circumstances  under  which  it  was  made.  In  cases  of  uncer- 
tainty it  is  to  be  interpreted  most  strongly  against  the  party  who 
caused  the  uncertainty  to  exist     Civ.  Code,  §§  1636-1654. 

Applying  these  rules  to  the  contract  in  the  present  case,  it  must 
be  held  that  it  was  the  intention  of  the  defendant  to  insure  gasoline, 
if  it  was  an  article  usually  kept  in  country  stores,  and  that,  if  such 
was  its  intention,  it  was  no  violation  of  the  policy  for  the  insured 
to  keep  gasoline  upon  the  premises  as  a  part  of  the  stock  of  merchan- 
dise. When  the  defendant  agreed  to  insure  a  stock  of  merchandise 
"such  as  is  usually  kept  in  country  stores,"  it  must  be  presumed  to 
have  known  the  character  of  the  merchandise  which  is  usually  kept 
in  country  stores,  and  that  gasoline  was  one  of  these  articles,  and, 
consequently,  that  its  policy  covered  all  such  merchandise.  Harper 
V.  Insurance  Co.,  17  N.  Y.  194;  Pindar  v.  Insurance  Co.,  36  N.  Y. 
648,  93  Am.  Dec.  544.  The  court  would  have  no  judicial  knowledge 
of  the  character  of  merchandise  which  is  usually  kept  in  countrv  stores, 
and  it  was  therefore  competent  to  offer  evidence  upon  that  point, 
for  the  purpose  of  enabling  it,  when  interpreting  the  language  of 
the  policy,  to  understand  the  matter  to  which  it  related,  and  the  cir- 
cumstances under  which  it  was  made.  Elliott  v.  Insurance  Co.,  13 
Gray  (Mass.)  139;  Whitmarsh  v.  Insurance  Co.,  16  Gray  (Mass.) 
359,  77  Am.  Dec.  414;  Archer  v.  Insurance  Co.,  43  Mo.  434;  Maril 
V.  Insurance  Co.,  95  Ga.  604,  23  S.  E.  463,  30  L.  R.  A.  835,  51  Am. 
St.  Rep.  102;  Fraim  v.  Insurance  Co.,  170  Pa.  151,  32  Atl.  613,  50 
Am.  St.  Rep.  753;  Wood,  Ins.  §  64;  May,  Ins.  §  239.  When  it  was 
shown  that  gasoline  is  one  of  the  articles  which  is  usually  kept  in 
country  stores,  the  court  correctly  held  that  it  was  a  part  of  the  sub- 
ject of  the  insurance,  and  that  the  insured  did  not  violate  the  policy 
by  keeping  it  in  stock.  The  defendant,  when  it  issued  the  policy  in 
question,  knew  the  character  of  a  country  store,  and  that  Mrs.  Brooks 
kept  it  for  the  purpose  of  retailing  to  her  customers  all  of  the  ar- 
ticles kept  by  her,  and  that  the  gasoline  which  she  kept  was  to  be 
disposed  of  by  retail  in  the  same  way  as  the  other  portion  of  her  stock. 


358  THE   STANDARD   FIRE   POLICY 

To  give  to  the  policy  the  construction  now  claimed  by  the  defend- 
ant would  be  to  hold  that,  although  it  agreed  with  her  to  insure  all 
the  stock  she  usually  kept  in  her  store,  yet,  if  she  continued  to  keep 
that  stock,  she  forfeited  all  rights  under  the  policy.  The  clause  in 
the  policy  above  quoted,  and  which  is  relied  on  by  the  appellant,  can- 
not be  construed  as  having  this  effect.  The  qualification  therein  which 
excepts  the  policy  from  becoming  void,  viz.  "unless  otherwise  pro- 
vided by  agreement  indorsed  hereon,"  is  found  in  the  policy  itself. 
The  subject-matter  of  the  risk — the  stock  of  merchandise  "such  as 
is  usually  kept  in  country  stores" — was-  written  on  the  policy  by  the 
insurer;  and,  as  .the  defendant  must  be  deemed  to  have  intended 
thereby  to  insure  all  such  articles  as  are  usually  kept  in  a  country 
store,  it  must  be  held  that  this  was  an  "agreement  indorsed"  upon 
the  policy,  which  removed  the  exemption  from  liability  that  would 
otherwise  have  existed.  Insurance  Co.  v.  De  Graff,  12  Mich.  124. 
If  there  be  any  repugnance  between  the  written  phrase,  "such  as 
is  usually  kept  in  country  stores,"  and  the  printed  clause,  "any  usage 
or  custom  of  trade  or  manufacture  to  the  contrary  notwithstanding," 
the  former  controls  the  latter,  as  being  the  more  deliberate  expression 
of  the  contracting  parties.  Fraim  v.  Insurance  Co.,  170  Pa.  151,  32 
Atl.  613,  50  Am.  St.  Rep.  753;  Civ.  Code,  §  1651.  *  *  *  Af- 
firmed.^* 


X.  Vacant  or  Unoccupied  Buildings 


33 


HOME  FIRE  INS.  CO.  v.  PEYSON. 

(Supreme  Court  of  Nebraska,  1S9S.     54  Neb.  495,  74  N.  W.  960.1 

SuLUVAN,  J.  On  February  26,  1892,  the  Home  Fire  Insurance 
Company  issued  to  John  M.  Peyson  a  policy  of  fire  insurance  cover- 
ing his  dwelling  house  and  the  household  furniture  therein  contain- 
ed. On  the  morning  of  June  27,  1894,  the  property  was  wholly  de- 
stroyed by  fire.     The  defendant  refused  to  adjust  the  loss,  and  Pey- 

3  4  Accord:  Ackley  v.  Phenix  Ins.  Co.,  25  Mont.  272,  64  Tac.  665  (1901). 
See,  also,  Mitchell  v.  Potomac  Ins.  Co.,  183  U.  S.  42,  22  Sup.  Ct.  22,  46  L. 
Ed.  74  (1901),  holding  that  it  must  clearly  appear  that  the  article  is  usually 
included  in  stock. 

The  standard  forms  of  policy  used  in  Maine,  Massachusetts,  Minnesota, 
New  Hampshire,  and  South  Dakota  do  not  contain,  in  the  provision  relating 
to  prohibited  articles,  the  words  "any  usage  or  custom  of  trade  or  manufac- 
ture to  the  contrary  notwithstanding."  In  the  other  states  in  which  a 
standard  form  is  prescril>ed,  the  provision  is  substantially  the  same  as  that 
in  the  New  York  Standard  form. 

3  5  For  discussion  of  principles,  see  Vance  on  Insurance,  §  171.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  pp.  1652-1687. 


VACANT   OR   UNOCCUPIED    BUILDINGS  359 

son  commenced  this  action  against  it  in  the  district  court  for  Dakota 
county.  A  trial  resulted  in  a  verdict  and  judgment  for  the  plaintiff, 
and  the  defendant  brings  the  record  to  this  court  for  review. 

The  company  defended  the  action  on  the  theory  that  the  plaintiff 
had  violated  the  following  condition  of  the  policy:  "If  the  above- 
mentioned  buildings  be  or  become  vacant  or  unoccupied,  and  so  re- 
main for  more  than  ten  days  without  consent  indorsed  hereon,  then 
in  each  and  every  one  of  the  above  cases  this  entire  policy  shall  be 
null  and  void."  It  is  now  strenuously  insisted  that  the  nonoccupancy 
of  the  premises  at  the  time  of  the  fire  and  for  six  or  eight  months 
prior  thereto  was  conclusively  proven,  and  that  the  trial  court  should 
have  peremptorily  directed  a  verdict  in  favor  of  the  defendant. 

The  evidence  is  voluminous  and  conflicting.  We  cannot  present 
it  here  nor  discuss  it  at  length.  It  either  establishes  or  tends  to  prove 
the  following  facts :  That  the  insured  building  was  situated  in  Cov- 
ington, in  this  state,  just  across  the  river  from  Sioux  City,  Iowa,  and 
was  the  home  of  Peyson,  who  occupied  it  continuously  with  his  wife 
from  the  time  it  was  insured  until  October,  1893,  when  they  both  went 
temporarily  to  Sioux  City  to  enable  Mrs.  Peyson  to  receive  medical 
treatment  from  a  physician  of  that  place ;  that  they  did  not  again 
regularly  occupy  the  insured  premises,  but  that  the  plaintiff",  who 
was  engaged  in  business  both  in  Sioux  City  and  Covington,  went 
there  frequently  and  slept  there  about  half  the  time ;  that  he  was 
never  away  from  the  house  more  than  three  days  at  one  time,  except 
when  he  went  to  Chicago  or  Waterloo  on  business ;  that  after  the 
1st  of  June  he  slept  in  the  house  almost  every  day  or  every  night; 
that  between  October,  1893,  and  June,  1894,  plaintiff  and  his  wife 
visited  their  home  together  on  numerous  occasions,  cooked  meals  there, 
and  on  May  16th  cleaned  the  house  and  spent  the  night  there ;  that 
during  a  part  of  the  time  the  Peysons  were  at  Sioux  City  they  had 
a  rented  room  and  did  light  housekeeping,  removing  for  that  purpose 
a  small  portion  of  their  household  furniture  from  Covington ;  that 
the  plaintiff  had  no  intention  of  abandoning,  the  premises  as  his  home; 
that  it  was  always  furnished  and  ready  for  use ;  that  he  held  an  office 
in  Covington,  and  received  his  mail  there  from  two  to  four  times  a 
week ;  that  Mrs.  Peyson  was  sick  and  receiving  medical  treatment 
most  of  the  time  while  in  Sioux  City;  that  on  June  11th  they  gave 
up  the  room  occupied  by  them  at  that  place,  and  Mrs.  Peyson  went 
to  visit  her  folks ;  that  during  all  the  time  in  question  Mr.  Hall,  a 
neighbor,  had  a  key  to  the  house  and  exercised  some  supervision 
over  it. 

Now,  the  jury  were  justified  in  finding,  and  we  may  assume  they 
did  find,  that  these  facts  were  established  by  the  evidence.  Being 
so  established,  did  they  warrant  the  conclusion  reached  that  the  con- 
dition of  the  policy  above  quoted  had  not  been  violated  ?  That  is  a 
question  of  law  to  be  decided  by  the  court.  The  term  "unoccupied," 
as  used  in  the  policy,  should  be  given  a  fair  and  reasonable  construe- 


360  THE   STANDARD   FIRE  POLICY 

tion.  It  should  be  g-iven  the  me?ning  contemplated  by  the  parties 
when  the  contract  was  made.  While  it  was  undoubtedly  intended  that 
the  dwelling  house  insured  should  be  occupied  as  the  customary  and 
habitual  place  of  abode  for  the  plaintiff  and  his  family,  it  was  not  ex- 
pected that  there  would  be  continuous  actual  occupancy.  A  policy 
of  fire  insurance  on  a  dwelling  house  should  not  be  construed  as  an 
instrument  restraining  in  any  manner  the  assured's  ordinary  free- 
dom of  action.  In  contracting  for  idemnity  he  does  not  consent  to 
become  a  captive  in  his  own  home. 

In  the  case  of  Insurance  Co.  v.  McLimans,  28  Neb.  846,  45  N.  W. 
171,  it  is  said:  "A  party  by  effecting  insurance  upon  his  dwelling  does 
not  thereby  impliedly  agree  that  he  will  remain  on  guard  to  watch 
for  the  possible  outbreak  of  a  fire.  He  insures  his  property  as  a  pre- 
caution against  possible  loss.  If  he  is  indebted,  his  duty  to  his  credi- 
tors requires  this  ;  and,  if  not  in  debt,  his  duty  to  his  family  may  in- 
duce him  to  procure  the  insurance.  He  is  not  to  become  a  prisoner 
on  the  property,  however,  nor  to  be  charged  with  laches,  when,  in 
the  pursuit  of  his  business,  health,  or  pleasure,  he  temporarily  leaves 
the  property,  which  still  remains  his  home.  The  necessity  of  most 
persons  for  temporary  absence  on  business  or  family  convenience  is 
known  to  every  one,  and  must  have  been  in  the  contemplation  of  the 
insurer  when  the  policy  was  issued.  A  policy  of  insurance  is  to  be 
so  construed,  if  possible,  as  to  carry  into  effect  the  purpose  for  which 
the  premium  was  paid  and  it  was  issued."  In  the  case  of  Hill  v.  In- 
surance Co.,  99  Mich.  466,  58  N.  W.  359,  it  was  held  that  a  dwelling 
house  was  not  unoccupied,  although  the  owner  had  been  absent  on 
business  nearly  two  months  at  the  time  of  the  fire,  and  had  left  home 
expecting  to  remain  away  about  four  months. 

In  the  case  at  bar  there  was  very  clearly  no  intention  on  the  part  of 
the  Peysons  to  remove  from  Covington  or  to  abandon  the  insured 
premises  as  their  home.  The  absence  of  the  family  at  Sioux  City 
was  temporary,  and  not  unreasonably  extended;  and  we  feel  con- 
strained to  hold  that  the  jury,  on  the  evidence,  were  warranted  in 
finding  that  the  insured  premises  did  not  become  unoccupied,  within 
the  meaning  of  the  policy.  The  judgment  of  the  district  court  is  af- 
firmed.^ ^ 

3  6  See  also,  Hill  v.  Ohio  Ins.  Co..  99  Mich.  466,  58  N.  W.  359  (1894);  Athens 
Mut.  Ins.  Co.  V.  Toney,  1  Ga.  App.  492,  57  S.  E.  1013  (1907) ;  Hampton  v.  Hart- 
ford Fire  Ins.  Co.,  65  N.  J.  Law,  265,  47  Atl.  433,  52  L.  R.  A.  344  (1900). 

The  provision  as  to  vacant  or  unoccupied  lirildings  is  substantially  the 
same  in  New  York,  Connecticut.  Louisiana,  Missouri,  New  Jersey,  North 
Carolina,  North  Dakota,  Pennsylvania,  and  Rhode  Island.  In  the  Michigan 
form  is  contained  a  clause:  "Provided  a  loss  occurs  *  *  *  while  such 
breach  of  condition  continues,  or  such  breach  of  condition  is  the  primary  or 
contributory  cause  of  loss."  In  the  "Wisconsin  form  the  words  "And  continu- 
ing until  tlie  time  of  the  Are"  are  added  to  the  provision.  In  Maine,  Massa- 
chusetts, Minnesota,  New  Hampshire,  and  South  Dakota  the  limit  of  time 
is  thirty  days. 


LIABILITY    OF   THE    INSURER  361 


XI.  Collapse  of  Building 


37 


JOHN   DAVIS   &   CO.   V.   INSURANCE   CO.   OF   NORTH 

AMERICA. 

(Supreme  Court  of  Michigan,  1897.     115  Mich.  382,  73  N.  W.  393.) 
For  a  report  of  the  case,  see  ante,  p.  315. 


XII.  Liability  of  the  Insurer  '» 


CANNON  V.  PHCENIX  INS.  CO.  OF  HARTFORD,  CONN. 

(Supreme  Court  of  Georgia,  1900.     110  Ga.  563,  35  S.  E.  775,  78  Am.  St. 

Kep.  124.) 

Lewis,  J.^®  This  was  a  suit  brought  in  Whitfield  superior  court 
by  A.  E.  Cannon  against  the  Phoenix  Insurance  Company  of  Hart- 
ford, Conn.,  on  an  insurance  policy  issued  by  the  company  on  plain- 
tiff's stock  of  merchandise  alleged  to  have  been  insured,  and  dam- 
aged by  fire,  the  loss  amounting  to  $3,000,  and  the  defendant's  lia- 
bility therefor,  pro  rata  with  other  concurrent  insurance,  being  $300. 

On  the  trial  of  the  case,  plaintiff  introduced  the  policy  of  insur- 
ance, one  material  part  of  which  is  as  follows :  "In  consideration  of 
the  stipulations  herein  named,  and  of  thirty-seven  and  ^"/loo  dollars 
premium,  the  [said  company]  does  insure  A.  E.  Cannon  for  the  term 
of  one  year  from  the  fifteenth  day  of  February,  1897,  at  noon,  to  the 
fifteenth  day  of  February,  1898,  at  noon,  against  all  direct  loss  or 
damage  by  fire,  except  as  hereinafter  provided,  to  amount  not  ex- 
ceeding twenty-five  hundred  dollars,  upon  the  following,  described 
property,  to  wit ;     *     *     *     On  her  stock  of  merchandise,  consisting" 

3  7  For  a  discussion  of  principles,  see  Vance  on  Insurance,  §  172.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  2,  pp.  1609-lGll;  vol.  4,  pp. 
3018,  .3029. 

The  provision  terminating  the  policy  if  the  building  or  any  part  thereof 
fall  except  as  the  result  of  fire  is  contained  in  the  standard  form  of  ix)licy 
prescribed  in  New  York,  Connecticut,  Louisiana,  Michigan,  Missouri,  New 
Jersey,  North  Carolina,  North  Dakota,  Pennsylvania,  Rhode  Island,  South 
Dakota,  and  Wisconsin.  The  standard  form  of  policy  prescribed  in  Maine,^ 
Massachusetts,  Minnesota,  and  New  Hampshire  does  not  contain  the  pro- 
vision. 

3  8  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  173-175.  See,. 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3006  et  seq. 

3  9  Part  of  the  opinion  is  omitted. 


362  THE   STANDARD   FIRE   POLICY 

chiefly  of  dry  goods,  notions,  hats,  clothing,  caps,  boots  and  shoes," 
etc. 

Plaintiff  then  offered  to  read  in  evidence  the  proof  of  loss  made  and 
given  by  plaintiff'  to  defendant,  the  material  part  of  which  is  as  fol- 
lows :  "To  the  Phoenix  Insurance  Company  of  Hartford,  Conn. :  By 
your  policy  of  insurance  No.  1,115,  issued  by  your  agent  at  Dalton, 
Ga.,  on  the  15th  day  of  February,  1897,  for  the  term  of  twelve  months, 
you  insured  the  undersigned,  A.  E.  Cannon,  against  loss  by  fire  to 
the  amount  of  twenty-five  hundred  dollars  on  her  stock  of  merchan- 
dise, consisting  of  clothing,  dry  goods,  notions,  boots,  shoes,  hats,  and 
caps,  while  contained  in  the  two-story  brick  metal-roof  building 
situated  at  Nos.  553  and  554,  on  the  east  side  of  Hamilton  street,  Dal- 
ton, Ga.,  block  No.  4.     On  the day  of  November,  1897,  the  same 

was  damaged  by  fire,  in  the  following  manner :  In  arranging  the  stove 
on  the  ground  floor  of  the  building  the  day  before,  the  pipe  thereof, 
which  extended  through  the  ceiling  and  through  the  second  story  of 
the  building,  became  disengaged  at  the  ceiling  of  the  second  floor. 
When  a  fire  was  built  in  the  stove  on  the  morning  of  the  3d  of  No- 
vember, the  smoke  and  soot  escaped  into  the  second-story  room,  where 
the  damaged  goods  were  situated.  When  the  trouble  was  discovered, 
the  room  was  full  of  smoke  and  soot,  and  the  ceiling  where  the  pipe 
went  through  was  very  hot,  and  by  reason  of  the  smoke  and  soot, 
and  of  the  water  used  in  cooling  the  ceiling,  the  goods  were  damaged 
as  here  set  out." 

Then  followed  in  said  proof  of  loss  a  statement  of  the  other  in- 
surance on  the  same  goods,  together  with  a  complete  inventory  of 
the  goods  damaged,  with  the  amount  of  damage  claimed  thereon. 
To  the  introduction  in  evidence  of  this  proof  of  loss  the  defendant 
objected,  on  the  ground  that  in  said  proof  of  loss  it  is  stated  that 
the  goods  were  injured  simply  by  reason  of  the  smoke  and  soot,  and 
that  there  is  no  allegation  in  said  proof  of  loss  that  there  was  any 
actual  burning  of  anything  except  the  material  put  in  the  stove  pur- 
posely to  burn,  and  that  the  said  proof  of  loss  did  not  show,  or  claim 
to  show,  that  there  was  any  loss  or  damage  by  fire  under  the  terms 
of  the  policy.    The  court  thereupon  sustained  the  objection.     *     *     =( 

Under  the  stipulations  in  the  policy,  there  can  be  no  question  that 
as  a  condition  precedent  to  the  payment  of  the  loss,  the  proofs  of  loss 
should    be    submitted    to    the    company    within    the    time   prescribed 
Southern  Home  Building  &  Loan  Ass'n  v.   Home  Ins.  Co.,  94  Ga 
167,  169,  21  S.  E.  375,  27  L.  R.  A.  844,  47  Am.  St.  Rep.  147.    The 
sufficiency  of  such  proofs  on  the  trial  of  the  case  is  a  question  for 
the  court,  and,  to  be  sufficient,  they  should  show  a  loss  within  the 
terms  of  the  policy.     Travelers'   Ins,  Co.  v.   Sheppard,  85  Ga.   751, 
761,  764,  12  S.  E.  18.    The  question,  then,  is  whether  the  proofs  of 
loss  submitted  in  this  case  were  within  the  meaning  of  this  policy. 
It  seems  that,  in  arranging  the  stove  on  the  ground  floor  of  the  build- 
ing the  day  before  the  damage,  the  pipe,   which  extended  through 


LIABILITY    OF   THE    INSURER  363 

the  ceiling  of  the  second  floor,  became  disengaged  at  that  ceiling,  and 
that,  when  the  fire  was  built  in  the  stove  on  the  next  morning,  smoke 
and  soot  escaped  from  the  pipe  into  the  second-story  room,  where 
the  damaged  goods  were  situated.  The  damage  claimed,  therefore, 
in  the  notice  of  loss,  was  by  reason  of  the  smoke  and  soot,  and  of 
the  water  used  in  cooling  the  ceiling.  It  does  not  appear  from  the 
proofs  of  loss  that  there  was  any  fire  in  or  about  the  building,  ex- 
cept in  the  stove  where  it  was  intended  to  be  built.  This  fire  did  not 
spread  from  where  it  was  built  and  intended  to  remain.  It  was  there- 
fore, all  the  time  during  the  alleged  injury  and  damage  to  the  goods, 
what  is  termed  in  the  books  a  "friendly,"  and  not  a  "hostile,"  fire. 

It  is  true  there  is  sound  authority  for  the  proposition  that  an  in- 
sured can  recover  loss  occasioned  by  smoke,  soot,  etc.,  thrown  out  by 
a  fire;  but  we  think  in  these  cases  it  will  be  found  that  such  matter 
causing  injury  was  the  product  of  a  hostile  fire.  If  a  fire  should 
break  out  from  where  it  was  intended  to  be,  and  become  a  hostile  ele- 
ment, by  igniting  property,  although  it  might  not  actually  burn  the 
property  insured,  yet  if  it  caused  injury  thereto  by  smoke  or  heat,  or 
other  direct  means,  damages  would  be  recoverable.  But  this  is  not 
the  case.  In  1  Wood,  Ins.  §  103,  the  following  principle  is  announced, 
directly  applicable  to  the  facts  in  this  case :  "Where  fire  is  employed 
as  an  agent,  either  for  the  ordinary  purposes  of  heating  the  building 
for  the  purposes  of  manufacture,  or  as  an  instrument  of  art,  the  in- 
surer is  not  liable  for  the  consequences  thereof,  so  long,  as  the  fire 
itself  is  confined  within  the  limits  of  the  agencies  employed,  as  from 
the  effects  of  smoke  or  heat  evolved  thereby,  or  escaping  therefrom, 
from  any  cause,  whether  intentional  or  accidental.  In  order  to  bring 
such  consequences  within  the  risk,  there  must  be  actual  ignition  out- 
side of  the  agencies  employed,  not  purposely  caused  by  the  assured, 
and  these,  as  a  consequence  of  such  ignition,  dehors  the  agencies." 
This  seems  to  have  been  an  early  principle  decided  in  England,  and 
the  author  refers  to  that  decision  in  a  note  to  the  text  just  quoted. 
See  Austin  v.  Drewe,  6  Taunt.  436. 

In  the  case  of  Gibbons  v.  Savings  Inst.,  30  111.  App.  263,  it  was 
decided  that  an  ordinary  fire  insurance  policy  does  not  cover  a  loss 
caused  by  escaping  steam  from  a  break  in  steam-heating  apparatus. 
Gary,  J.,  says  in  his  opinion  that  in  principle  that  case  was  the  same 
as  Austin  v.  Drewe,  where,  by  the  omission  to  open  a  register,  in  an 
upper  story  of  a  seven  or  eight  story  building,  smoke  and  heat  came 
into  lower  stories,  and  caused  damage.  He  quotes  the  following  lan- 
guage from  Gibb,  C.  J.,  in  that  case :  "There  was  no  fire  except  in 
the  stove  and  the  flue,  as  there  ought  to  have  been,  and  the  loss  was 
occasioned  by  the  confinement  of  the  heat.  Had  the  fire  been  brought 
out  of  the  flue,  and  anything  had  been  burnt,  the  company  would  have 
been  liable.  But  can  this  be  said  where  the  fire  never  was  at  all  ex- 
cessive, and  was  always  confined  within  its  proper  limits?  This  is 
not  a  'fire,'  within  the  meaning  of  the  policy,  nor  a  loss  which  the  com- 


364  THE   STANDARD   FIRE   POLICY 

pany  undertakes  to  insure  against.  They  may  as  well  be  sued  for 
the  damage  done  to  drawing-room  furniture  by  a  smoky  chimney." 
In  the  language  of  Gary,  J.,  in  his  opinion:  "If  the  fire  were  a  moral 
agent,  no  blame  could  be  imputed  to  it.  It  was  doing  its  duty,  and 
no  more.  The  damage  was  caused  by  another  agent,  who,  undertak- 
ing to  transmit  the  beneficial  influence  of  the  fire,  broke  down  in  the 
task."  See  case  of  American  Towing  Co.  v.  German  Fire  Ins.  Co., 
74  Md.  25,  21  Atl.  553,  and  the  able  opinion  of  Alvey,  C.  J.,  on  page 
34  et  seq.,  74  Md.,  and  page  554,  21  Atl. 

Neither  is  the  plaintiff  entitled  to  recover  any  damages  by  the  wa- 
ter used  in  cooling  a  portion  of  the  ceiling  heated  by  the  pipe.  In  the 
proofs  of  loss  it  is  not  claimed  that  anything  was  actually  ignited  by 
this  heat,  and  it  does  not  appear  that  the  use  of  the  water  was  nec- 
essary to  prevent  the  ignition.     *     *     *     Judgment  affirmed.*'' 


O'CONNOR  V.  QUEEN  INS.  CO.  OF  AMERICA. 

(Supreme  Court  of  Wisconsin.  1909.     140  Wis.  388,  122  N.  W.  1038,  1122,  25 
L.  R.  A.  [N.  S.]  501,  133  Am.  St.  Rep.  1081,  17  Ann.  Cas.  1118.) 

Action  by  D.  J.  O'Connor  against  the  Queen  Insurance  Company 
of  America.  There  was  a  judgment  for  plaintifif,  and  defendant  ap- 
peals. 

Kerwin,  J.*^  The  policy  in  this  case,  being  the  Wisconsin  stand- 
ard form,  insured  the  plaintiff  "against  all  direct  loss  and  damage  by 
fire" ;  and  the  controversy  is  as  to  whether  the  loss  and  damage  was 
caused  by  anything  insured  against  by  the  defendant  company.  The 
question  arises  whether  the  fire  which  caused  the  damage  was  a  fire 
within  the  meaning  of  the  policy.  The  plaintiff  lived  in  a  rented 
house  heated  by  a  furnace.  His  servant  built  a  fire  in  the  furnace 
of  material  not  for  use  therein  or  intended  so  to  be  used,  and  of  such 
a  highly  inflammable  character  as  to  cause  intense  heat  and  great  vol- 
umes of  smoke  to  escape  through  the  registers  leading  into  the  rooms, 
and  greatly  damaged  plaintift"s  property.  The  heat  was  so  intense 
as  to  char  and  injure  furniture,  and  the  great  volumes  of  smoke  and 
soot  greatly  injured  the  furnishings  and  personal  property  of  the 
plaintiff.     It  does  not  appear  from  the  evidence  that  there  w^as  any 

40  See,  also,  John  Davis  Co.  v.  Insurance  Co.,  ante,  p.  315. 

The  standard  policy  contains  a  provision  exempting  the  Insurer  from  liabil- 
ity for  loss  caused  by  explosion  unless  fire  ensues,  and  in  such  case  the  in- 
surer is  liable  for  the  damage  by  fire  only.  If  the  explosion  is  caused  by  a 
hostile  tire,  the  company  is  liable  for  all  the  damage.  Mitchell  v.  Potomac 
Ins.  Co..  IG  App.  D.  C.  241  (1900),  affirmed  in  183  U.  S.  42.  22  Sup.  Ct.  22,  46 
Li.  Ed.  74  (1901).  If,  however,  the  explosion  is  caused  by  a  friendly  fire,  as 
by  striking  a  match,  the  insurer  is  not  liable  for  damage  caused  by  the  explo- 
sion. Mitchell  V.  Insurance  Co.,  supra ;  Heuer  v.  Northwestern  Nat.  Ins.  Co., 
144  111.  393,  33  N.  E.  411,  19  L.  R.  A.  594  (1893). 

41  The  statement  of  facts  is  rewritten. 


LIABILITY    OF   THE    INSURER  365 

ignition  outside  of  the  furnace,  although  the  fire  was  so  intense  as  to 
overheat  the  chimney  and  flues,  and  char  furniture  in  the  rooms.  The 
evidence  shows  that  the  chimney  was  so  hot  it  seemed  as  though  it 
was  on  fire,  that  the  fire  was  burning  fiercely  in  the  furnace,  around 
the  mop  boards  was  burned,  and  the  mop  boards  blistered,  the  wall 
paper  charred  and  burned,  and  the  chimney  crackedl  from  the  exces- 
sive heat.  It  is  the  contention  of  appellant  that  the  damage  occasioned 
by  heat,  smoke,  and  soot  is  not  covered  by  the  policy  where  the  fire 
is  confined  within  the  furnace.  This  position  involves  the  construc- 
tion of  the  words  of  the  policy  "direct  loss  or  damage  by  fire,"  and 
leads  to  a  considieration  of  what  fires  are  within  the  contemplation  of 
the  policy. 

No  limitation  is  placed  upon  the  word  "fire"  by  the  language  of  the 
policy  itself,  but  it  is  said  that  "contracts  of  insurance  are  to  be  con- 
strued according  to  the  sense  and  meaning,  of  the  terms  which  the 
parties  have  used,  and,  if  they  are  clear  and  unambiguous,  the  terms 
are  to  be  taken  and  understood  in  their  plain,  ordinary,  and  proper 
sense."  No  doubt  this  is  the  general  rule,  but  it  must  also  be  remem- 
bered in  applying  the  rule  that  this  and  other  courts  have  construed 
contracts  of  insurance  favorably  to  the  insured.  Karow  et  al.  v.  Con- 
tinental F.  Ins.  Co.,  57  Wis.  56.  15  N.  W.  27,  46  Am.  Rep.  17;  Brady 
V.  Northwestern  Ins.  Co.,  11  Mich.  425;  May  on  Insurance  (3d  Ed.) 
402 ;   Peters  et  al.  v.  Warren  Ins.  Co.,  14  Pet.  99,  10  L.  Ed.  371. 

Appellant  insists  that  a  fire  confined  within  the  limits  of  a  furnace, 
although  prodkicing  damage  by  smoke  and  heat,  is  not  a  fire  within 
the  meaning  of  the  policy  in  question,  and  relies  mainly  upon  the  case 
of  Austin  V.  Drew,  4  Camp.  361.  In  that  case  the  plaintiff  was  the 
owner  of  a  sugar  factory  several  stories  high  with  pans  on  the  ground 
floor  for  boiling  sugar  and  a  stove  for  heating.  A  flue  extended  to 
the  top  of  the  building  with  registers  on  each  floor  connecting  with 
the  flue  to  introduce  heat.  Because  of  the  negligence  of  a  servant  in 
not  opening  a  register  at  the  top  of  the  flue,  or  chimney,  used  to  shut 
in  the  heat  during  the  night,  the  smoke,  sparks,  and  heat  from  the 
stove  were  intercepted,  and,  instead  of  escaping  through  the  top  of 
the  flue,  were  forced  into  the  rooms,  in  consequence  of  which  the 
sugar  was  damaged.  The  flames  were  confined  within  the  stove  and 
flue,  and  no  actual  ignition  took  place  outside  thereof,  and  it  was  held 
that  the  loss  was  not  covered  by  the  policy.  The  Lord  Chief  Justice 
said  that  there  was  no  more  fire  than  always  existed  when  the  man- 
ufacture was  going  on,  and  which  continued  to  burn  without  any  ex- 
cess. The  case  seems  to  turn  upon  the  point  that  the  fire  was  the 
usual  and  ordinary  fire,  never  excessive  and  always  confined  within 
its  proper  limits.  We  shall  briefly  refer  to  other  cases  cited  by  ap- 
pellant on  this  point. 

In  German  American  Ins.  Co.  v.  Hyman,  42  Colo.  156,  94  Pac.  27, 
16  L.  R.  A.  (N.  S.)  77,  the  loss  was  caused  by  an  explosion  pro- 
duced by  lighting  a  match,   where  the  policy  contained  a  provision 


366  THE   STANDARD   FIRE   POLICY 

that  the  insurers  should  not  be  liable  for  loss  by  explosion  unless  fire 
ensues,  and  in  that  event  for  the  damage  by  fire  only.  Samuels  v. 
Continental  Ins.  Co.,  2  Pa.  Djst.  R.  397,  was  a  claim  for  damages 
caused  by  smoke  and  soot  from  a  lamp  whose  flame  flared  up  above 
the  lamp.  Ignited  L.  F.  &  M.  Ins.  Co.  v.  Foote  et  al.,  22  Ohio  St. 
340,  10  Am.  Rep.  735,  was  a  case  of  explosion  excepted  from  the 
policy,  and  it  was  held  that  the  fire  was  caused  by  the  explosion ; 
therefore  the  loss  was  occasioned  by  explosion.  Renshaw  v.  Fireman's 
Ins.  Co.,  33  Mo.  App.  394,  is  also  an  explosion  case  caused  by  igni- 
tion from  a  burning,  gas  jet,  and  it  was  held  that,  where  the  explosion 
is  the  direct  result  of  the  antecedent  fire,  the  policy  covers  it,  but, 
where  the  explosion  is  not  occasioned  by  the  fire,  there  is  no  liability 
for  the  result  of  the  explosion.  In  the  one  case  the  fire  causes  the 
explosion,  and  in  the  other  the  explosion  causes  the  fire.  Briggs  et 
al.  V.  North  A.  &  M.  Ins.  Co.,  53  N.  Y.  446,  is  a  case  where  the  ex- 
plosion was  before  the  fire,  and  not  caused  by  the  fire.  Transatlantic 
F.  Ins.  Co.  V.  Dorsey,  56  Md.  70,  40  Am.  Rep.  403,  was  a  case  of  ex- 
plosion, and  the  main  question  was  whether  the  fire  was  the  direct 
cause  of  the  explosion.  1  Wood  on  Insurance  (2d  Ed.)  §  103,  it  is 
true  lays  down  the  general  rule  that  no  liability  arises  where  the  fire 
is  confined  within  the  limits  of  the  agencies  employed,  referring  to 
the  case  of  Austin  v.  Drew,  supra,  with  the  observation  that  the  doc- 
trine of  that  case  had  been  considerably  misconceived  by  courts  and 
text-writers.  Gibbons  v.  German  Ins.  &  S.  I.,  30  111.  App.  263,  was 
a  case  of  damage  caused  by  the  escape  of  steam.  Case  v.  Hartford 
F.  Ins.  Co.,  13  111.  676,  discusses  Austin  v.  Drew,  4  Camp.  361,  and 
discards  the  idea  that  there  can  be  no  loss  by  fire  without  actual  igni- 
tion. Millaudon  v.  New  Orleans  Ins.  Co.,  4  La.  Ann.  15,  50  Am. 
Dec.  550,  is  a  case  where  the  damage  was  caused  by  the  explosion  of 
a  steam  boiler,  while  in  Waters  v.  Merchants'  L.  Ins.  Co.,  11  Pet. 
213,  9  L.  Ed.  691,  an  explosion  of  gunpowder  is  held  to  be  a  loss 
by  fire  where  the  thing  exploded  was  on  fire.  American  Towing  Co. 
V.  German  F.  Ins.  Co.,  74  Md.  25,  21  Atl.  553,  was  a  case  of  overheated 
boiler  owing  to  the  absence  of  water.  Austin  v.  Drew,  supra,  is  re- 
ferred to,  and  it  was  held  damage  not  covered  by  the  policy.  Cannon  v. 
Phcenix  Ins.  Co.,  110  Ga.  563^  35  S.  E.  775,' 78  Am.  St.  Rep.  124, 
is  a  case  where  the  fire  was  an  ordinary  fire  in  a  stove.  The  fire  was 
what  is  termed  in  law  books  a  "friendly,"  and  not  a  ''hostile,"  fire. 
In  this  case  the  stovepipe  became  disarranged,  and  snioke  and  soot 
escaped,  together  with  the  water  used  in  cooling  the  ceiling,  causing 
the  damage.  Austin  v.  Drew,  supra,  is  cited  in  support  of  the  opinion. 
It  will  be  seen  from  the  foregoing  cases  relied  upon  by  appellant  that 
the  cases  in  this  country  in  any  way  tending  to  support  appellant's 
contention  rest  upon  the  doctrine  of  Austin  v.  Drew,  which  has  not 
been  extended,  but  limited  to  the  particular  facts  of  the  case,  and  the 
doctrine  enunciated  therein  criticised  in  some  well-considered  cases. 
We  shall  briefly  refer  to  some  of  the  authorities.    At  page  929,  §, 


LIABILITY    OF   THE    INSURER  367 

402,  Mr.  May  in  his  work  on  Insurance  discusses  the  doctrine  laid 
down  in  Austin  v.  Drew,  and  concludes  that,  if  the  doctrine  in  that 
case  is  intended  to  go  farther  than  the  facts  of  the  case,  it  has  been 
deemed  not  to  be  good  law  by  every  high  authority.  In  Scripture  v. 
Lowell  M.  F.  Ins.  Co.,  10  Cush.  (Mass.)  356,  57  Am.  Dec.  Ill,  the 
doctrine  of  Austin  v.  Drew  is  explained,  and  the  court  says  that  lack  of 
study  of  the  case  by  courts  and  text-writers  has  caused  it  to  be  mis- 
applied, and  refers  to  the  language  of  the  Chief  Justice  in  Austin  v. 
Drew,  to  the  effect  that  the  fire  was  an  ordinary  one,  and  no  more 
than  always  existed  when  the  manufacturing  was  going  on.  Single- 
ton et  al.  V.  Phenix  Ins.  Co.,  132  N.  Y.  298,  30  N.  E.  839,  is  a 
case  where  a  boat  was  loaded  with  quicklime  in  barrels.  The  boa^ 
was  found  to  be  on  fire  through  the  slacking  of  the  lime.  It  was 
towed  into  the  river  and  sunk  to  prevent  total  destruction.  It  was 
claimed  that  some  water  in  the  boat  must  have  caused  the  slack- 
ing of  the  lime ;  held,  that  the  loss  was  by  fire  within  the  mean- 
ing of  the  policy.  Further  intimated  that  it  may  not  be  necessary 
to  show  actual  ignition  or  combustion  to  establish  a  loss  by  fire.  In 
Way  V.  Abington  M.  F.  Ins.  Co.,  166  Mass.  67,  43  N.  E.  1032,  32 
L.  R.  A.  608,  55  Am.  St.  Rep.  379,  fire  in  the  stove  ignited  the  soot 
in  the  chimney,  and  the  smoke  and  soot  from  the  burning  chimney  es- 
caped into  the  room  and  damaged  property.  Held,  that  such  dam- 
age was  covered  by  the  policy  insuring  against  all  loss  or  damage  by 
fire.  The  case  seems  to  have  turned  upon  the  fact  that  the  fire  in 
the  chimney  was  a  "hostile"  fire;  therefore  the  damage  caused  by 
such  fire  was  covered  by  the  policy.  In  Lynn  G.  &  E.  Co.  v.  Meriden 
F.  Ins.  Co.,  158  Mass.  570,  33  N.  E.  690,  20  L.  R.  A.  297,  35  Am. 
St.  Rep.  540,  it  was  held  under  an  insurance  policy  against  loss  or 
damage  by  fire  that  damage  to  machinery  in  a  part  of  the  building 
not  reached  by  the  fire  caused  by  short  circuiting  of  electric  current 
was  covered. by  the  policy.  It  was  further  held  that  the  fire  was  the 
direct  and  proximate  cause  of  the  damage  under  the  words  of  the 
policy  "direct  and  proximate  cause."  In  California  Ins.  Co.  v.  L'nion 
C.  Co.,;  133  U.  S.  387,  10  Sup.  Ct.  365,  33  L.  Ed.  730,  the  words  of 
a  policy  "direct  loss  or  damage  by  fire"  are  defined  to  mean  loss  or 
damage  occurring  directly  from  fire  as  the  destroying  agencv  in  con- 
tradistinction to  the  remoteness  of  fire  as  such  agency.  In  German 
American  Ins.  Co.  v.  Hyman,  42  Colo.  156,  94  Pac.  27,  16  L.  R.  A. 
(N.  S.)  77,  under  an  insurance  policy  providing  that  the  insurer 
would  not  be  liable  for  loss  by  explosion,  it  was  held  that  if  the  fire 
precedes  the  explosion,  and  the  latter  is  an  incident  of  the  former 
and  caused  by  it,  the  insured  may  recover  for  his  entire  loss,  but  if 
the  explosion  precedes  the  fire,  and  is  not  caused  by  it.  the  insured 
can  only  recover  for  the  loss  by  fire.  In  Russell  v.  German  F.  Ins. 
Co.,  100  Minn.  528.  Ill  N.  \V\  403.  10  L.  R.  A.  (N.  S.)  326,  it  is 
held  that,  to  render  a  fire  the  immediate  or  proximate  cause  of  the 
loss  or  damage,  it  is  not  necessary  that  any  part  of  the  insured  prop- 


368  THE   STANDARD   FIRE   POLICY 

erty  actually  ignited  or  was  consumed  by  fire.  In  Ermentrout  et  al. 
V.  Girard  F.  &  M.  Ins.  Co.,  63  Minn.  305,  65  N.  W.  635,  30  L.  R.  A. 
346,  56  Am.  St.  Rep.  481,  the  case  was  on  a  policy  insuring  plaintiff 
^'against  all  direct  loss  or  damage  by  fire,"  and  the  policy  further  pro- 
vided that,  if  the  building,  fell  "except  as  result  of  fire,"  the  insur- 
ance on  the  building  should  immediately  cease.  There  was  evidence 
tending  to  prove  that  a  building  adjacent  to  the  one  insured!  caught 
fire  and  was  partially  consumed,  and  as  a  result  of  such  fire  fell,  car- 
rying down  with  it  a  partition  wall  and  a  part  of  the  insured  building. 
Held,  that  the  fall  of  the  insured  building  was  "the  result  of  fire" 
and  "a  direct  loss  or  damage  by  fire,"  although  no  part  of  it  ignited 
or  was  consumed  by  fire. 

Cameron  in  his  work  on  the  Law  of  Fire  Insurance  in  Canada,  p. 
51,  discusses  the  effect  of  the  word  "direct"  in  policies  providing 
against  "direct  loss  or  damage  by  fire,"  and  says  that  the  word  has 
no  significance  or  value,  and  whether  used  or  not  the  fire  must  be  the 
proximate  cause  of  the  loss  or  damage.  See,  also,  Richards  on  In- 
surance Law  (3d  Ed.)  §  231,  where  it  is  said  that  the  word  "direct" 
in  a  policy  means  immediate  or  proximate  as  distinguished  from  re- 
mote, but  that  the  proximate  results  of  fire  may  include  other  things 
than  combustion,  as,  for  example,  the  resulting  fall  of  a  building,,  in- 
juries to  insured  property  by  water,  loss  of  goods  by  theft,  exposure 
of  goods  during  fire.  See,  also,  Elliott  on  Insurance,  ■§  221,  and  Cle- 
ment on  Fire  Insurance  as  a  A^alid  Contract,  pp.  84-87. 

The  foregoing  cases,  we  think,  fully  show  that  Austin  v.  Drew  is 
not  authority  against  plaintiff  here.  There  the  fire  was  under  con- 
trol, not  excessive,  and  suitable  and  proper  for  the  purpose  intended. 
It  was  in  the  language  of  the  books  a  "friendly,"  and  not  a  "hostile," 
fire.  In  the  case  before  us  the  fire  was  extraordinary  and  unusual,  un- 
suitable for  the  purpose  intended,  and  in  a  measure  uncontrollable, 
besides  being  inherently  dangerous  because  of  the  unsuitable  material 
used.  Such  a  fire  was  we  think  a  "hostile"  fire,  and  within  the, con- 
templation of  the  policy.  Ordinarily  the  question  in  such  cases  is  for 
the  jury.  New  York  &  B.  D.  E.  Co.  et  al.  v.  Traders'  &  M.  Ins. 
Co.,  132  Mass.  Z77 ,  42  Am.  Rep.  440;  Xew  York  &  B.  D.  E.  Co.  et 
al.  V.  Traders'  M.  Ins.  Co.,  135  Mass.  221 ;  Richards  on  Insurance, 
§231. 

But  in  this  case  the  evidence  being  practically  undisputed,  we  think 
no  error  was  committed  in  directing  a  verdict  for  the  plaintiff.  The 
judgment  of  the  court  below  is  affirmed. *- 

4  2  See  dissenting  opinion  of  Judge  Marsliall,  140  Wis.  395,  122  N.  W.  1122, 
25  L.  R.  A.  (N.  S.)  506,  17  Ann.  Cas.  1121. 


MEASURE   OF  INSURER'S   LIABILITY  369 


XIII.     Measure  of  Insurer's  Liability  *^ 


FARMERS'  FEED  CO.  OF  NEW   JERSEY  v.  SCOTTISH 
UNION  &  NAT.  INS.  CO.  OF  EDINBURGH. 

(Court  of  Appeals  of  New  York,  1903.     173  N.  Y.  241,  65  N.  E.  1105.) 

Action  by  the  Farmers'  Feed  Company  of  New  Jersey  ap;"ainst  the 
Scottish  Union  &  National  Insurance  Company  of  Edinburgh.  From 
a  judgment  of  the  appellate  division  (65  App.  Div.  70,  72  N.  Y. 
Supp.  7Z2)  affirming,  a  judgment  for  plaintiff,  defendant  appeals. 

Vann,  J.  This  controversy  was  submitted  upon  an  agreed  state- 
ment of  the  facts,  which,  so  far  as  material  to  the  appeal,  are  as  fol- 
lows : 

In  May,  1898,  the  defendant,  by  a  policy  of  the  standard  form,  in- 
sured certain  buildings  belonging  to  the  plaintiff  in  the  city  of  New 
York  against  loss  by, fire  for  the  term  of  three  years  from  the  23d  of 
May,  1898,  "to  an  amount  not  exceeding  $60,000."  On  the  14th  of 
June,  1900,  such  insurance  to  the  amount  of  $17,500  was, canceled  by 
mutual  consent,  leaving  a  balance  of  $42,500  still  in  force.  The  pol- 
icy contained  an  apportionment  clause,  which  provided  that  "this 
company  shall  not  be  liable  under  this  policy  for  a  greater  proportion 
of  any  loss  on  the  described  property  *  *  *  than  the  amount  here- 
by insured  shall  bear  to  the  whole  insurance,  whether  valid  or  not,  or 
by  solvent  or  insolvent  insurers,  covering  such  property.     ♦     *     ♦  " 

On  the  5th  of  June,  19(X),  the  plaintiff  procured  other  insurance  on 
the  same  property  "to  an  amount  not  exceeding  $5,000"  in  each 
of  the  following  companies:  The  Springfield  Fire  &  Marine  In- 
surance Company,  the  Providence  Washington  Insurance  Company, 
and  the  Westchester  Fire  Insurance  Company,  and  "to  an  amount 
not  exceeding  $2,500"  in  the  Insurance  Company  of  the  state  of 
Pennsylvania;  making  $17,500  as  the  maximum  amount  for  which 
these  four  companies  could,  in  any  event,  become  liable.  Each  of 
these  policies  contained  a  paragraph  headed,  "Percentage  Co-Insur- 
ance Clause,"  of  which  the  following  is  a  copy :  "In  consideration  of 
the  premium  for  which  this  policy  is  issued  it  is  expressly  stipulated 
that  in  the  event  of  loss  this  company  shall  be  liable  for  no  greater 
proportion  thereof  than  the  sum  hereby  insured  bears  to  80  per  cent. 
of  the  cash  value  of  the  property  described  herein  at  the  time  when 
such  loss  shall  happen,  nor  more  than  the  proportion  which  this  policy 
bears  to  the  total  insurance." 

4  3  For  discussion  of  principles,  see  Vance  on  Insurance.  §§  176,  177.     See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  pp.  3061-3127. 
CooLEY  Ins. — 24 


370  THE  STANDARD   FIRE  POLICY 

On  the  1st  of  July,  1900,  a  fire  occurred,  by  which  the  property  in- 
sured, the  cash  vakie  of  which  was  $124,660,  was  damaged  to  the 
amount  of  $45,321.18,  as  ascertained  by  an  appraisal  duly  had. 

The  plaintiff  claims  that  the  amount  due  from  the  defendant  un- 
der its  policy  "by  reason  of  the  fire  loss"  was  $38,177.26,  while  the 
defendant  claims  that  such  amount  was  but  $32,102.50,  which  it  has 
paid  to  the  plaintiff  under  an  agreement  that  such  payment  should 
be  without  prejudice.  The  appellate  division  rendered  judgment  in 
favor  of  the  plaintiff  for  the  difference,  between  these  sums,  amount- 
ing to  $6,074.76,  wnth  interest  thereon  from  November  28,  1900. 

The  decision  of  the  controversy  turns  on  the  meaning  of  the  words 
"whole  insurance,"  as  used  in  the  apportionment  clause  of  the  defend- 
ant's policy.  It  was  there  provided  that  the  defendant  should  not  be 
liable  for  a  greater  proportion  of  any  loss  than  the  amount  insured 
by  its  policy  should  bear  to  the  whole  insurance  on  the  property. 
There  is  no  disagreement  as  to  the  amount  of  insurance  made  by  the 
defendant's  policy,  which  was  absolute,  but  the  controversy  is  over  the 
amount  made  by  the  four  other  policies,  which  were  not  absolute,  ow- 
ing to  the  co-insurance  clause.  The  defendant  claims  that  the  whole 
insurance  was  $60,000,  comprising  the  $42,500  made  by  its  own  policy 
and  $17,500,  or  the  greatest  sum  for  which,  in  any  event,  the  four  com- 
panies could  become  liable,  and  that  the  plaintiff  was  a  co-insurer  tO' 
the  extent  of  the  difference  between  the  amount  for  which  they  are 
liable  and  the  maximum  amount  for  which  they  might  be  liable. 
This  would  reduce  the  indemnity  furnished  by  the  defendant's  pol- 
icy from  $38,177.26,  the  amount  claimed  by  the  plaintiff,  to  $32,102.- 
50.  the  amount  paid  by  the  defendant. 

The  plaintiff  claims  and  the  appellate  division  held,  that  under  the 
circumstances  "the  amount  of  insurance  effected  by  the  four  policies 
is  identical  with  the  amount  of  the  loss,  and  that  the  extent  of  that 
insurance  couldl  not  be  ascertained  until  after  a  loss,  for  the  insur- 
ance was  to  an  amount  not  exceeding  a  stipulated  sum,  and  was, 
therefore,  indefinite."  This  conclusion  gives  no  force  to  the  appor- 
tionment clause  in  the  defendant's  policy  when  construed  in  connec- 
tion with  the  co-insurance  clause  of  the  other  policies.  Moreover, 
all  five  insurance  policies,  including  that  issued  by  the  defendant,  are 
indefinite  in  the  same  way,  for  they  all  make  insurance  to  an  amount 
not  exceeding  a  sum  named!  which  is  usually  regarded  as  the  amount 
of  insurance  effected. 

The  four  companies  stipulated  that  they  should  "be  liable  for  no 
greater  proportion"  of  the  loss,  which  was  $45,321.18,  "than  the  sum 
hereby  insured,"  or  $17,500,  "bears  to  80  per  cent,  of  the  cash  value 
of  the  property,"  which  was  $99,728.  Their  liability,  therefore,  is  rep- 
resented by  the  following  proportion:  As  $99,728  is  to  $17,500,  so 
is  $45,321.18  to  the  amount  required,  or  $7,952.84.  Was  this  "the 
whole  insurance"  effected  by  the  four  policies  containing  the  co-in- 
surance clause?     If  so,  that  clause  has  no  effect  in  this  case.     We 


MEASURE    OF   INSURER'S   LIABILITY  371 

think  it  was  not.  for,  if  the  loss  had  been  greater,  the  amount  called 
for  by  the  policies  would  have  been  greater  also,  and  yet  it  could  not 
have  exceeded  the  amount  of  the  insurance.  The  largest  sum  which, 
in  any  event,  can  be  collected  under  a  policy,  and  not  the  smaller  sum 
which  may  be  collected  under  special  circumstances,  is  the  amount 
of  insurance  effected  by  the  policy.  There  is  no  limit  to  the  possible 
liability  under  the  four  policies,  except  the  amount  that  the  compa- 
nies stipulated  it  should  not  exceed,  aggregating  $17,500,  which  they 
would  have  been  obliged  to  pay  if  the  loss  had  been  total. 

Under  an  open  policy,  if  the  loss  is  less  than  the  insurance,  the 
former  measures  the  liability,  but  if  the  loss  is  greater  than  the  in- 
surance, the  latter  measures  the  liability ;  yet  in  either  event  the 
amount  of  insurance  is  the  same.  The  amount  of  the  insurance,  there- 
fore, is  the  largest  sum  that  the  company,  under  any  circumstances, 
according  to  the  terms  of  the  policy,  can  be  required  to  pay.  This  is 
the  popular  understanding,  as  well  as  the  legal  definition.  The  test 
is,  what  is  the  extent  of  the  indemnity  furnished  under  any  possible 
circumstances?  The  insurance  effected  by  the  four  policies  was  for 
a  proportion  of  the  cash  value  of  the  property  less  20  per  cent.,  which 
can  always  be  represented  by  a  fraction,  the  numerator  being  un- 
changeable, while  the  denominator  may  vary  from  time  to  time.  The 
numerator  is  the  highest  amount  which  the  companies  could  be  re- 
quired to  pay,  while  the  denominator  is  80  per  cent,  of  the  cash  value 
of  the  property.  The  amount  of  the  insurance  does  not  vary,  but  the 
cash  value  of  the  property  is  subject  to  change;  still  that  change  does 
not  reduce  the  amount  of  insurance.  The  fact  that  the  owner  ran 
his  own  risk  or  became  his  own  insurer  as  to  the  20  per  cent,  of  the 
cash  value  of  the  property  did  not  lessen  the  amount  of  insurance,  be- 
cause, if  the  loss  had  been  total,  the  whole  $17,500  would  have  been 
due  upon  the  four  policies.  Thus  the  eftect  of  the  co-insurance  clause 
is  that,  if  the  property  is  insured  to  80  per  cent,  of  its  value,  or  more, 
in  case  of  a  total  loss  the  whole  sum  insured  becomes  due ;  but  with 
insurance  for  less  than  80  per  cent,  of  the  value  and  a  loss  also  of 
less  than  80  per  cent,  the  owner  becomes,  in  effect,  a  co-insurer  pro- 
portionately. He  could  have  procured  insurance  to  80  per  cent,  of  the 
value,  but,  not  having  done  so,  he  became  his  own  insurer  pro  tanto. 

This  accords  with  the  way  the  clause  is  characterized  in  the  pol- 
icies, for  it  is  entitled  "Percentage  Co-Insurance  Clause,"  which  means 
insurance  by  the  company  and  the  owner,  depending  upon  the  percent- 
age or  proportion  which  the  insurance  bears  to  the  value.  The  ob- 
ject is  through  lower  premiums  to  induce  the  owner  either  to  take 
out  insurance  to  80  per  cent,  of  value,  or  to  become  a  co-insurer  with 
less  risk  to  the  company  in  case  of  a  loss  falling  below  such  percentage 
of  value.  Where  either  the  loss  or  the  insurance  equals  or  exceeds 
80  per  cent,  of  value,  the  clause  has  no  effect,  but  when  both  are  less 
the  insured  and  the  insurer  bear  the  loss  in  certain  proportions.  The 
amount  of  insurance  is  not  the  variable  factor,  but  the  amount  of  loss. 


o 


72  THE   STANDARD   FIRE   POLICY 


The  amount  of  insurance  is  at  all  times  the  same,  but  when  the  loss 
is  partial  the  insurer  stands  only  a  part,  unless  the  insurance  is  for 
the  full  percentage,  whereas,  if  the  loss  is  total,  the  insvired  stands 
all,  not  exceeding  the  limit  stated  in  the  policy.  That  limit  is  the 
amount  of  insurance  made  by  the  policy,  because  the  company  may 
be  required  to  pay  to  that  extent. 

The  words  of  the  co-insurance  clause,  viz.,  "the  sum  hereby  in- 
sured," indicate  the  amount  of  insurance.  That  sum  is  fixed,  definite, 
and  always  the  same.  It  should  not  be  confounded  with  the  actual 
liability  under  special  circumstances,  for  all  open  policies  are  neces- 
sarily indefinite  as  to  the  sum  to  be  paid  until  the  amount  of  the  loss 
is  known.  The  liability  can  never  exceed  the  value  of  the  property, 
but  the  insurance  may,  for  a  house  worth  but  $1,000  may  be  insured 
for  $2,000.  If  thus  insured  by  two  companies,  one-half  in  each,  and 
the  property  was  wholly  destroyed  by  fire,  neither  would  have  to  pay 
$1,000,  the  amount  of  its  policy,  but  only  $500,  the  amount  of  its  lia- 
bility, owing  to  the  apportionment  clause.  This  would  be  true  of  a 
standard  policy  even  if  one  of  the  companies  was  insolvent,  so  that 
the  insured,  by  taking  out  other  insurance,  may  reduce  his  security 
while  intending  to  increase  it. 

In  the  case  before  us  the  plaintiff,  by  procuring  the  four  policies, 
reduced  his  security  in  the  event  of  a  partial  loss,  but  increased  it  in 
the  event  of  a  total  loss.  For  the  purpose  of  apportionment,  the 
face  value  of  the  policies  should  be  resorted  to,  regardless  of  thi 
cash  value  of  the  property,  and  thus  the  whole  amount  of  the  in- 
surance can  be  ascertained  by  a  simple  inspection  of  the  policies. 
The  face  value  of  a  policy  is  not  reduced  by  the  actual  value  of  the 
property,  or  by  the  duty  of  apportioning  the  loss,  or  by  the  effect  of 
a  co-insurance  clause  in  another  policy  on  the  same  property.  The 
amount  of  insurance  is  fixed  at  the  inception  of  the  policy,  but  the 
amount  of  liability  is  not  fixed  until  a  loss  has  occurred.  The  one  de- 
pends upon  the  sum  for  which  the  policy  is  written,  but  the  other  de- 
pends upon  a  number  of  contingencies  which  may  or  may  not  happen, 
and  hence  cannot  be  known  in  advance.  The  fact  that  they  are  not 
known,  and  may  never  come  into  existence,  does  not  affect  the  amount 
of  the  policy. 

The  question  involved  is  new,  and  we  are  without  controlling  au- 
thorities to  guide  us,  but  the  discussion  of  a  subject  somewhat  relat- 
ed in  a  recent  case  has,  aided  us  in  reaching  the  conclusion  an- 
nounced. Continental  Ins.  Co.  v.  ^-Etna  Ins.  Co.,  138  N.  Y.  16,  21, 
33  N.  E.  724. 

It  may  be  asked  why,  if  the  whole  insurance  was  $60,000,  the  plain- 
tiff is  not  entitled  to  recover  his  entire  loss,  which  was  but  $45,321.18; 
and  the  answer  is  that  he  agreed  in  a  certain  contingency  to  stand 
part  of  the  loss  himself.  He  accepted  four  policies,  which  provided 
for  the  payment  to  him  of  not  exceeding  $17,500  in  case  of  a  total 
loss,  or,  in  case  the  loss  was  partial,  and  his  insurance  amounted  to 


CANCELLATION    OF   POLICY  373 

80  per  cent,  of  the  cash  vahie  ;  but  he  agreed  that,  if  both  loss  and 
insurance  were  each  less  than  the  80  per  cent.,  to  take  less  than  the 
amount  of  his  loss,  and  thus  became  a  co-insurer  for  the  difference. 
The  defendant,  pursuant  to  its  apportionment  clause,  is  entitled  to  the 
benefit  of  all  other  insurance,  whether  made  by  another  company  alone 
or  by  a  contract  between  another  company  and  the  insured,  by  which, 
in  case  of  partial  loss,  each  stands  part  as  a  co-insurer. 

We  think  that  the  "whole  insurance"  was  $60,000,  the  face  value 
of  all  the  policies,  and  that  the  judgment  appealed  from  should,  there- 
fore, be  reversed),  and  judgment  ordered  for  defendant  on  the  merits, 
with  costs.** 


XIV.  Cancellation  of  Policy" 


TAYLOR  V.  INSURANCE  CO.  OF  NORTH  AMERICA. 

(Supreme  Court  of  Oklahoma.  1909.     2.5  Okl.  92,  105  Pac.  354,   138  Am.  St. 

Rep.  906.) 

Action  by  William  Taylor  against  the  Insurance  Company  of  North 
America.    Judgment  for  defendant,  and  plaintiff  brings  error. 

Williams,  J.*®  The  agent  of  the  company,  in  whose  possession  the 
insured  left  the  policy  upon  which  this  action  was  based,  was  named 
Comer.  On  September  26,  1904,  Comer  met  Taylor  on  the  streets 
of  Claremore  and  said  to  him :  "The  insurance  company  has  canceled 
your  policy  on  your  hay."  Taylor  asked  him  on  what  ground,  and 
the  agent  said:  "They  did  not  state."  Taylor  then  said:  "Where 
is  my  money?"  or  "How  about  my  money  I  have  paid  them,  if  they 
have  canceled  it  ?  How  about  my  money  ?"  And  the  agent  said : 
"They  did  not  say  anything  about  it."  Taylor  rejoined :  "I  guess  I 
can  get  my  money  then,  if  they  have  canceled  it."  The  agent,  Comer, 
testified  that  he  canceled  the  policy  on  September  26,  1904,  and  on 
that  day  returned  the  same  to  the  company. 

It  is  the  contention  of  counsel  for  plaintiff  in  error  that  the  com- 
pany, under  the  terms  of  this  policy,  could  not  cancel  it  except  that 
it  at  some  time  tendered  or  returned  to  him  the  unearned  premium  in 
accordance  with  what  he  argues  are  its  terms,  and  on  account  of  the 
fact  that  this  unearned  premium  was  neither  returned  nor  tendered 
prior  to  October  9,  1904,  that  this  had  the  effect  of  keeping  alive 
the  policy  and  rendering  the  company  liable  for  the  loss. 

44  Actual  cash  value  at  time  of  loss,  see  Liverpool  &  London  &  Globe  Ins. 
Co.  V.  McFadden,  170  Fed.  179.  95  C.  C.  A.  429,  27  L.  R.  A.  (X.  S.)  1095  (liKX)). 

45  For  discussion  of  principles,  see  Vance  on  Insurance,  §  183.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  3,  pp.  2789-2814. 

4  6  Part  of  the  opinion  is  omitted. 


374  THE   STANDARD   FIRE   POLICY 

The  paragraph  of  the  policy  relating  to  cancellation  is  what  is 
commonly  known  as  the  "New  York  standard  form,"  and  reads  as 
follows :  "This  policy  shall  be  canceled  at  any  time  at  the  request  of 
the  insured,  or  by  the  company  by  giving  five  days'  notice  of  such 
cancellation.  If  this  policy  shall  be  canceled  as  hereinbefore  provided, 
or  become  void  or  cease,  the  premium  having  been  actually  paid,  the 
unearned  portion  shall  be  returned  on  surrender  of  this  policy  or  last 
renewal,  this  company  retaining  the  customary  short  rate,  except  that, 
when  this  policy  is  canceled  by  this  company  by  giving  notice,  it  shall 
retain  only  the  pro  rata  premium." 

The  construction  of  this  contract  is  necessary  in  order  to  deter- 
mine whether  or  not  the  policy  is  canceled.  If  the  construction  con- 
tended for  by  the  defendant  in  error  is  correct,  the  clause  was  in- 
tended to  read  as  follows:  "If  this  policy  shall  be  canceled  as  here- 
inbefore provided,  or  become  void  or  cease,  the  premium  having  been 
actually  paid,  the  unearned  portion  shall  be  returned  on  surrender  of 
this  policy  or  last  renewal,  this  company  retaining  the  customary  short 
rate,  except  that,  when  this  policy  is  canceled  by  this  company  by 
giving  notice  (on  surrender  of  this  policy),  it  shall  retain  only  the  pro 
rata  premium." 

Without  the  interpolation  of  the  words  "on  surrender  of  this  policy" 
in  the  last  clause,  there  is  an  ambiguity,  and  there  is  equal  reason 
for  the  following  interpretation :  "If  this  policy  shall  be  canceled  (at 
any  time  at  the  request  of  the  insured),  or  become  void  or  cease,  the 
premium  having  been  actually  paid,  the  unearned  portion  shall  be 
returned  on  surrender  of  this  policy  or  last  renewal,  this  company 
retaining  the  customary  short  rate,  except  that,  when  this  policy  is 
canceled  by  this  company  by  giving  notice,  it  shall  retain  only  the 
pro  rata  premium." 

When  the  policy  is  canceled  by  giving  "five  days'  notice  of  such  can- 
cellation," the  company  retaining  "only  the  pro  rata  premium,"  this 
cannot  be  accomplished  without  a  tender,  unless  the  words  "on  sur- 
render of  the  policy"  are  read  into  said  clause ;  and  if  that  was  the 
intention,  why  repeat  the  words  "by  giving  notice"?  If  that  con- 
tention is  correct,  it  should  have  been  stated  as  follows:  "This  policy 
shall  be  canceled  at  any  time  at  the  request  of  the  insured,  or  by  the 
company  by  giving  five  days'  notice  of  such  cancellation.  If  this 
policy  shall  be  canceled  as  hereinbefore  provided,  or  become  void  or 
cease,  the  premium  having  been  actually  paid,  the  unearned  portion 
shall  be  returned  on  surrender  of  this  policy  or  last  renewal,  this  com- 
pany retaining  the  customary  short  rate,  except  that,  when  this  policy 
is  canceled  by  this  company,  *  *  *  jj.  shall  retain  only  the  pro 
rata  premium." 

To  say  the  least,  the  cancellation  clause  is  ambiguous,  and  when 
we  consider  that  the  insurer  was  skilled,  not  only  in  the  framing,  but 
also  the  interpretation,  of  such  contracts,  and  that  the  insured  had  no 
part  in  the  framing  thereof,  as  well  as  being  unskilled  in  such  inter- 


CANCELLATION    OF    POLICY  375 

pretation,  such  construction  should  be  adopted  as  is  more  favorable  to 
the  insured ;  and  especially  is  this  true  when  the  construction  con- 
tended for  by  the  insurer  is  not  only  inequitable,  but  also  unjust. 

The  contract  of  insurance  here  involved,  known  as  the  "New  York 
standard  policy,"  was  framed  by  virtue  of  chapter  488,  p.  720,  of 
the  Laws  of  New  York  of  1886,  providing  for  a  uniform  contract  of 
fire  insurance  to  be  used  by  fire  underwriters  within  said  state.  The 
clause  here  under  consideration  was  first  before  the  Supreme  Court 
of  the  state  of  New  York  in  the  case  of  Nitsch  v.  American  Central 
Insurance  Company,  83  Hun,  614,  31  N.  Y.  Supp.  1131,  wherein  a 
tender  was  construed  to  be  necessary  to  the  cancellation  of  the  policy. 
The  judgment  of  the  Supreme  Court  was  affirmed  by  the  New  York 
Court  of  Appeals  on  March  16,  1897  (152  N.  Y.  635,  46  N.  E.  1149). 
Afterwards,  on  Alarch  1,  1898,  in  the  case  of  Tisdell  v.  New  Hamp- 
shire Fire  Insurance  Company,  155  N.  Y.  163,  49  N.  E.  664,  40  L. 
R.  A.  765  (see,  also.  Id.,  11  Misc.  Rep.  20,  32  N.  Y.  Supp.  166),  it 
was  again  held  that  a  tender  was  a  condition  precedent  to  the  can- 
cellation of  such  a  policy — the  opinion  being  delivered  by  Mr.  Justice 
Bartlett,  concurred  in  by  Justices  Haight,  Martin,  and  Vann,  Chief 
Justice  Parker  and  Mr.  Justice  O'Brien  dissenting,  and  Mr.  Justice 
Gray  being  absent. 

Again,  in  the  case  of  Buckley  v.  Insurance  Co.,  188  N.  Y.  399,  81 
N.  E.  165,  13  L.  R.  A.  (N.  S.)  889  (see,  also,  Id.,  112  App.  Div.  451, 
98  N.  Y.  Supp.  622),  the  Court  of  Appeals,  following  the  Nitsch  and 
Tisdell  Cases,  said :  "It  is  a  question  of  vital  importance  to  the  insurer 
and  the  insured  as  to  the  precise  meaning  of  the  cancellation  clause  in 
the  standard  policy.  The  situation  is  not  a  complicated  one,  and  the 
court  desires  to  so  construe  the  clause  that  its  meaning  may  be  made 
clear.  If  the  insurance  company  desires  to  cancel,  it  must,  as  we 
have  held  in  the  cases  cited,  not  only  give  the  notice  required,  but 
accompany  it  by  the  payment  or  tender  of  the  pro  rata  amount  of  the 
unearned  premium.  It  cannot  legally  demand  of  the  insured  the  sur- 
render of  the  policy  and  its  cancellation  until  this  is  done."  The  court 
was  unanimous  as  to  the  foregoing  conclusion.  At  that  time  Chief 
Justice  Cullen,  and  Justices  O'Brien,  Haight,  Hiscock,  Bartlett,  Chase, 
and  Vann  comprised  the  court. 

In  the  case  of  Philadelphia  Linen  Co.  v.  Manhattan  Fire  Insur.  Co., 
8  Pa.  Dist.  R.  261,  that  court,  after  referring  to  the  Tisdell  Case, 
said :  "The  question  which  is  now  before  us  was  then  passed  upon 
by  the  Supreme  Court  of  New  York  upon  a  policy  where  the  language 
was  identically  the  same  as  that  which  has  been  quoted  from  the  de- 
fendant's policy.  The  majority  of  the  court  in  that  case  decided  that, 
upon  cancellation  of  the  policy  by  the  company,  it  must  return  or 
tender  the  unearned  premium  in  order  to  efifect  a  cancellation.  The 
same  conclusion  seems  to  have  been  arrived  at  by  the  same  court  in 
an  earlier  case,  Nitsch  v.  American  Cent.  Ins.  Co.,  reported  in  152 
N.  Y.  635,  46  N.  E.   1149.     While  these  decisions  are  not  binding 


376  THE   STANDARD   FIRE   POLICY 

Upon  the  courts  of  Pennsylvania,  they  are,  of  course,  entitled  to  great 
respect.  It  is  no  doubt,  eminently  proper  to  hold  companies  and  cor- 
porations, such  as  insurance  companies,  to  a  strict  construction  of  their 
rights  as  defined  in  formal  contracts,  which  are  prepared  in  their  own 
interest  and  the  terms  of  which  the  insured,  as  a  rule,  has  little  or  no 
part  in  determining.  This  has  been  the  policy  of  the  courts,  and 
has  been  found  by  experience  to  be  necessary  in  order  to  guard  the 
interests  of  those  who  are  in  many  cases  ignorant,  and  in  all  cases 
more  or  less  at  the  mercy  of  such  corporations.  The  courts  of  this 
state  have  been  moved  by  the  same  policy,  and  it  may  be,  and  we 
are  inclined  to  think,  that  the  attitude  which  has  been  taken  by  our 
own  Supreme  Court  with  reference  to  provisions  not  identical  with, 
but  similar  to,  those  in  question,  requires  us  to  follow  the  ruling 
which  has  been  made  in  the  state  of  N.ew  York." 

In  the  case  of  Gosch  v.  Firemen's  Insurance  Co.,  33  Pa.  Super. 
Ct.  496,  the  court  said :  "The  plaintiffs,  then,  having  paid  the  pre- 
mium for  the  entire  term,  could  the  defendant,  at  its  own  pleasure, 
effect  a  complete  extinguishment  of  the  insurance  contract,  merely  by 
giving  notice  of  its  determination  to  cancel,  without  at  the  same  time 
returning  or  tendering  the  unearned  portion  of  that  premium  ?  Where 
a  contract  with  mutual  undertakings  has  been  entered  into  by  two  par- 
ties and  fully  performed  by  one  of  them,  we  may  certainly  say, 
speaking  generally,  that  the  other  party  could  not  successfully  in- 
voke the  aid  of  any  court  in  an  effort  to  rescind  until  he  had  returned 
or  tendered  the  return  of  any  valuable  thing  he  had  received  by 
reason  of  the  contract.  To  permit  him  to  retain  the  benefits  and 
at  the  same  time  repudiate  the  burdens  of  his  own  agreement  would 
be  highly  unconscionable  and  shocking  to  our  sense  of  natural  justice. 
It  would  be  out  of  harmony  with  some  of  the  fundamental  principles 
on  which  our  entire  system  of  jurisprudence  is  built.  Of  course, 
where  the  right  to  cancel  has  been  expressly  reserved  in  the  contract 
itself,  then  the  extent  of  the  right  and  the  conditions  upon  which 
it  may  be  exercised  must  be  determined  by  a  reference  to  the  con- 
tract, rather  than  to  principles  of  general  law.  Turning,  then,  to  the 
language  of  the  agreement  in  which  the  parties  have  undertaken  to 
state  their  respective  rights  and  duties,  if  we  find  it  susceptible  of 
two  constructions,  one  in  harmony  with,  the  other  in  opposition  to, 
those  general  principles  already  referred  to,  a  sound  discretion  would 
seem  to  invite  us  to  accept  the  former  and  reject  the  latter,  just  as, 
in  ascertaining  the  true  meaning  of  a  doubtful  clause  in  a  will,  the 
courts  incline  to  that  construction  which  would  vest  the  estate,  rather 
than  leave  it  contingent,  which  would  give  the  inheritance  to  the 
heir  rather  than  to  a  stranger.  Taking  up,  then,  the  provision  of  the 
policy  on  this  subject,  and  looking  at  it  as  a  whole,  we  may  confidently 
say  that  it  contemplates  a  complete  and  effective  destruction  of  the 
contractual  relation  at  the  instance  of  either  party,  and  that  to  ac- 
complish this  end  the  party  moving  must  do  two  distinct  and  sep- 


CANCELLATION    OF   POLICY  377 

arate  things;  the  object  in  view  undeniably  being  that,  when  the 
cancellation  shall  have  been  completed,  both  parties  will  have  been  re- 
stored, as  far  as  possible,  to  the  conditions  existing  before  the  con- 
tractual relation  began.  If  the  destruction  of  this  relation  be  begun 
by  the  assured,  he  must  give  notice  to  the  other  party  and  surrender 
his  policy,  which  proclaims  the  existence  of  the  relation  he  would 
now  destroy.  If  begun  by  the  company,  it  must  also  give  notice  and 
repay  or  tender  payment  of  the  unearned  premium  in  its  hands.  The 
right  reserved  to  each  party  is  but  a  single  one,  viz.,  the  right  to 
cancel;  and  the  cancellation  contemplated  is  not  a  partial,  but  a 
complete,  one.  The  obligation  imposed  on  the  party  moving  to  can- 
cel is,  looking  broadly  at  the  entire  contract  provision,  also  single, 
viz.,  the  restoration  of  the  other  party,  as  far  as  may  be,  to  the  situ- 
ation occupied  before  the  contractual  relation  began.  True,  this  in- 
volves the  performance  or  tender  of  performance  of  another  act 
besides  the  giving  of  notice :  but  it  does  not  necessarily  follow  that 
such  performance  or  tender  may  be  totally  dissevered  in  time  from, 
and  thus  rendered  wholly  independent  of,  the  giving  of  the  notice. 
Such  a  construction  of  the  policy  provision,  although  strongly  urged 
on  us  by  the  learned  counsel  for  appellant,  is,  at  best,  a  doubtful  one. 
More  than  this  he  can  hardly  claim  for  it,  in  the  light  of  the  fact 
that  it  has  been  deliberately  rejected  by  the  courts  of  last  resort  of 
most  of  our  sister  states.  The  argument  supporting  it,  as  he  agrees, 
has  been  stated,  as  forcibly  as  it  can  be,  in  the  dissenting  opinion  of 
Chief  Justice  Parker  in  Tisdell  v.  New  Hampshire  Fire  Ins.  Co., 
155  N.  Y.  163,  49  N.  E.  664.  40  L.  R.  A.  765.  An  examination 
of  this  opinion  seems  to  show  that  its  conclusions  are  reached  rather 
from  a  critical  analysis  of  some  of  the  language  of  the  policy  pro- 
vision and  the  order  in  which  its  sentences  are  collated  than  from  a 
broad  view  of  the  entire  provision  and  a  consideration  of  the  nature 
of  the  object  to  be  accomplished  thereby.  The  following  language 
from  the  majority  opinion  clearly  indicates  that  the  question  must 
now  be  considered  as  settled  in  that  jurisdiction:  'The  question  pre- 
sented on  this  appeal  is  no  longer  an  open  one  in  this  court.  It 
was  (^ecided  in  Nitsch  v.  American  Central  Ins.  Co.,  152  N.  Y.  635, 
46  N.  E.  1149,  affirmed  in  this  court  without  an  opinion.  In  that 
case,  as  in  this  one,  the  question  presented  was  whether  the  pro- 
vision of  the  New  York  standard  policy  of  fire  insurance  relating  to 
the  cancellation  of  a  policy  at  the  instance  of  the  company  requires 
that,  in  addition  to  giving  the  five  days'  notice,  the  company  must 
return  or  tender  the  unearned  premium  in  order  to  eflfect  a  cancella- 
tion. The  answer  was  in  the  affirmative.'  In  an  elaborate  discus- 
sion of  the  whole  subject,  to  be  found  in  Cooley's  Briefs  of  Insur- 
ance, wherein  all  of  the  cases  from  the  various  jurisdictions  are  cited 
and  considered,  the  general  rule  to  be  drawn  from  them  is  thus  stated 
on  page  2801 :  'The  general  rule  is  that  under  such  a  provision,  unless 
waived,  the  repayment  of  such  proportion  of  the  premium  is  essential 


378  THE   STANDARD   FIRE   POLICY 

to  a  valid  cancellation,  and  notice  without  such  repayment  or  a  tender 
of  the  amount  is  ineffectual.  *  *  *  There  must  be  an  actual  re- 
payment or  tender ;  a  mere  promise  to  pay,  a  request  to  call  for 
the  amount  due,  or  notice  that  the  money  is  subject  to  insured's  order, 
being  insufficient.' "     *     *     * 

In  the  case  of  Chrisman  &  Sawyer  Banking  Co.  v.  Hartford  Fire 
Insurance  Co.,  75  Mo.  App.  310,  that  court  said:  "In  the  rescission 
of  a  contract  by  one  party,  it  is  a  necessary  condition  precedent  to 
such  rescission  to  place  the  other  party  in  statu  quo — to  restore  to 
him  whatever  may  belong  to  him  by  reason  of  bringing  the  contract 
to  an  end.  This  is  the  general  rule,  as  applied  to  all  cases  of  con- 
tract. And  within  this  rule  it  has  been  repeatedly  held  that  before  an 
insurance  company  can  make  an  effective  cancellation  it  must  re- 
turn or  tender  the  unearned  premium.  *  *  *  j^  this  case  no  at- 
tempt was  made  to  do  so.  No  effort  was  made  to  ascertain  what 
the  unearned  premium  was,  and  certainly  it  will  not  be  pretended 
that  the  president  of  the  woolen  mill  released  his  claim  for  that. 
But  it  is  said  that  this  particular  policy  provided  that  the  unearned 
premium  was  to  be  returned  'on  the  surrender  of  the  policy.'  And, 
as  the  policy  was  not  surrendered,  it  was  not  necessary  to  return  the 
premium.  We  think  the  return  of  the  premium  and  the  surrender 
of  the  policy,  under  the  terms  of  the  contract,  were  concurrent  acts ; 
that  neither  could  be  demanded  without  the  other.  But,  as  defendant 
was  the  party  seeking  cancellation,  it  was  its  duty  first  to  have  tendered 
the  unearned  premium  on  a  surrender  of  the  policy.  It  then  would 
have  done  all  that  the  contract  required  it  to  do  in  order  to  place  the 
assured  in  statu  quo."     *     *     * 

In  the  case  of  Hartford  Fire  Ins.  Co.  v.  McKenzie,  70  111.  App. 
615,  the  court  for  the  Second  district,  in  construing  an  identical  con- 
tract, said :  "Where  the  company  seeks  to  cancel  the  contract  under 
such  stipidation  as  is  above  set  out,  the  insured  does  not  have  to 
tender  his  policy,  in  order  to  entitle  him  to  receive  back  the  un- 
earned premium ;  but  it  is  for  the  company  desiring  cancellation  to 
seek  the  assured  and  tender  the  money  to  him,  and  till  it  does  so  the 
cancellation  has  not  been  effected."  See,  also,  Peterson  v.  Hartford 
Fire  Ins.  Co.,  87  111.  App.  567 ;  Hartford  Fire  Ins.  Co.  v.  Tewes, 
132  111.  App.  321 ;  Williamson  v.  Warfield-Pratt-Howell  Co.,  136  III. 
App.  168;  Mississippi  Valley  Ins.  Co.  v.  Bermond,  45  111.  App.  22; 
Hamburg-Bremen  Fire  Ins.  Co.  v.  Browning,  102  Va.  890,  48  S.  E. 
2;   2  Clement  on  Insurance,  p.  405.     *     *     * 

The  authorities  holding  to  the  contrary  are  as  follows :  Schwarz- 
child  &  Sulzberger  Company  v.  Phoenix  Insurance  Company  of  Hart- 
ford, 124  Fed.  52,  59  C.  C.  A.  572;  Id.  (C.  C.)  115  Fed.  653;  El 
Paso  Reduction  Company  v.  Hartford  Insurance  Company  (C.  C.) 
121  Fed.  937;  Davidson  v.  German  Insurance  Company,  74  N.  J. 
Law,  487,  65  Atl.  996,  13  L.  R.  A.  (N.  S.)  884,  12  Ann.  Cas.  1065; 
Insurance  Company  v.  Brecheisen,  50  Ohio  St.   542,  35  N.  E.   53 ; 


NOTICE    AND    PKOOFS    OF    LOSS  379 

Newark  Fire  Insurance  Company  v.  Sammons  et  al.,  11  111.  App.  230. 
Such  policy  being  framed  by  virtue  of  the  laws  of  New  York,  and 
the  highest  court  of  that  state  having  interpreted  same,  such  con- 
struction should  be  of  most  persuasive  influence,  if  not  binding  with  us, 
especially  when  supported  by  the  weight  of  authoritv.  Equitable  Life 
Assur.  Soc.  V.  Brown,  213  U.  S.  25,  29  Sup.  Ct.  404,  53  L.  Ed.  6S2. 
Hence  we  hold  that  the  policy  was  not  canceled;  no  tender  having 
been  timely  made.     *     *     *      Reversed.*^ 


XV.  Notice  and  Proofs  of  Loss  *' 


SERGENT  v.  LONDON  &  LIVERPOOL  &  GLOBE  IKS.   CO. 

(Supreme  Court  of  New  York.  General  Term.  Fourth  Department,  1S95.     85 

Hun,  31,  32  N.   Y.   Supp.  594.) 

Action  by  Adelbert  G.  Sergent  against  the  London  &  Liverpool 
&  Globe  Insurance  Company  on  a  fire  insurance  policy.  From  a 
judgment  dismissing  the  complaint,  and  from  an  order  denying  a  mo- 
tion for  a  new  trial,  made  on  the  minutes,  plaintiff  appeals. 

Per  Curiam.*^  On  the  trial  the  plaintiff  was  nonsuited.  The  prin- 
cipal question  involved  upon  this  appeal  is  as  to  the  validity  of  such 
nonsuit.  The  policy  which  formed  a  basis  for  this  action,  among 
others,  contained  the  following  provisions :  "If  fire  occur,  the  in- 
sured shall  give  immediate  notice  of  any  loss  thereby  in  writing  to 
this  company,  and  within  sixty  days  after  the  fire,  unless  such  time 
is  extended  in  writing  by  this  company,  shall  render  a  statement  to 
this  company,  signed  and  sworn  to  by  said  insured,  stating  the  knowl- 
edge and  belief  of  the  insured  as  to  the  time  and  origin  of  the  fire ; 
the  interest  of  the  insured  and  all  others  in  the  property;  the  cash 
value  of  each  item  thereof,  and  the  amount  of  loss  thereon ;  all  in- 
cumbrances thereon ;  all  other  insurance,  whether  valid  or  not,  cover- 
ing any  of  said  property,  and  a  copy  of  the  descriptions  and  schedules 

47  Contra:  Davidson  v.  German  Ins.  Co.,  74  N.  J.  Law,  487,  65  Atl.  99G,  13 
L.  R.  A.  (N.  S.)  884.  12  Ann.  Gas.  1065  (1907). 

The  provision  as  to  cancellation  is  sulistantially  the  same  in  the  standard 
form  of  policy  prescribed  in  New  York,  Connecticut,  Louisiana.  Michigan, 
Missouri.  New  Jersey.  North  Carolina.  North  Dakota,  Pennsylvania,  and 
Rhode  Island.  The  Wisconsin  form  provides  that,  if  the  hazard  is  increased 
solely  by  act  of  God,  the  company  may  not  cancel  except  on  .sixty  days'  no- 
tice. The  forms  used  in  Maine,  ^Massachusetts.  Minnesota.  New  Hamp.shire. 
and  South  Dakota,  provide  that  cancellation  by  the  company  may  be  made 
by  gi\'ing  notice  and  "tendering  the  ratable  proportion  of  the  premium." 

4  8  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  184—189.  See, 
also,  Cooley.  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3347  et  seq. 

49  Part  of  the  opinion  is  omitted. 


380  THE  STANDARD  FIRE   POLICY 

in  all  policies;  any  changes  in  the  title,  use,  occupation,  location, 
possession,  or  exposures  of  said  property  since  the  issuing  of  this 
policy ;  by  whom  and  for  what  purpose  any  building  herein  described, 
and    the   several   parts   thereof,   were   occupied   at   the   time   of   fire. 

That  the  property  included  in  the  policy  in  question  was  destroyed 
by  fire  on  August  27,  1892,  and  that  proofs  of  loss  were  not  furnished 
until  November  26th  of  that  year,  are  undisputed  facts  in  the  case. 
Thus,  it  conclusively  appears  that  the  condition  of  the  policy  re- 
quiring the  plaintiff  to  furnish  proofs  of  loss  within  60  days  after 
the  fire  was  not  performed  or  complied  with ;  nor  is  it  pretended  that 
the  time  was  extended  in  writing  by  the  defendant.  The  furnishing 
of  proofs  of  loss  as  required  by  the  policy  was  a  condition  precedent 
to  the  plaintiff's  right  of  recovery.  Underwood  v.  Insurance  Co.,  57 
N.  Y.  500;  Blossom  v.  Insurance  Co.,  64  N.  Y.  162;  O'Brien  v. 
Insurance  Co.,  63  N.  Y.  Ill;  AIcDermott  v.  Insurance  Co.,  44  N.  Y. 
Super.  Ct.  R.  221  ;  Bell  v.  Insurance  Co..  19  Hun,  238.  And  the 
nonperformance  of  this  condition  constitutes  a  complete  defense  to 
a  recovery  upon  such  a  policy.  Cuinlan  v.  Insurance  Co.,  133  N.  Y. 
356,  362,  31  N.  E.  31,  28  Am.  St^  Rep.  645. 

These  authorities  seem  to  be  decisive  of  the  question  before  us, 
unless  this  provision  in  the  policy  can  be  held  to  have  been  waived 
by  the  defendant.  We  have  carefully  examined  the  evidence  bearing 
upon  that  question,  and  regard  it  as  insufficient  to  raise  any  question 
of  waiver  of  this  condition  in  the  policy.  Without  discussing  the 
other  questions  upon  which  it  is  claimed  that  the  nonsuit  might  be 
sustained,  we  regard  the  one  already  considered  as  sufficient,  and  hence 
do  not  examine  the  other  questions  presented  for  our  consideration. 

We  have  also  examined  the  other  exceptions  to  which  our  atten- 
tion has  been  called  by  the  appellant,  but  find  none  that  would  au- 
thorize us  to  disturb  the  judgment.  Judgment  and  order  affirmed, 
with  costs.^'' 


MASON  v.  ST.  PAUL  FIRE  &  MARINE  INS.  CO. 

(Supreme  Court  of  Minnesota,  1901.     82  Minn.  336,  85  N.  W.  13,  83  Am.  St. 

Rep.  4.33.) 

Action  by  George  A.  Mason  against  the  St.  Paul  Fire  &  Marine 
Insurance  Company.  Judgment  for  plaintiff.  From  an  order  deny- 
ing a  new  trial,  defendant  appeals. 

BO  The  provision  as  to  notice  and  proofs  of  loss  is  substantially  the  same 
in  the  stanclard  form  of  policy  prescribed  in  New  York.  Connecticut.  Louisi- 
ana. Michigan.  Missouri.  New  Jersey,  North  Carolina,  North  Dakota.  Penn- 
sylvania, Rhode  Island,  South  Dakota,  and  Wisconsin.  In  Maine,  Ma.ssa- 
chusetts.  Minnesota,  and  New  Hampshire,  the  provision  is  in  effect  that  in 
case  of  loss  or  damage  a  statement  "shall  be  forthwith  rendered  to  the  com- 
pany," setting  forth,  etc. 


NOTICE    AND    PKOOFS    OF   LOSS  381 

Brown,  J.^^  This  action  is  one  to  recover  upon  a  fire  insurance 
policy,  issued  by  defendant  to  plaintiff  and  one  ^labey,  covering  a  steam 
yacht  on  the  waters  of  Lake  Minnetonka.  Plaintiff  had  a  verdict  in 
the  court  below,  and  defendant  appeals  from  an  order  denying  a  new 
trial. 

The  facts,  briefly  stated,  are  as  follows :  Plaintiff  and  Mabey  jointly 
owned  the  yacht  in  question,  and  insured  it  in  defendant  company 
for  the  sum  of  $1,000,  the  policy  of  insurance  being-  in  the  form  of 
the  Minnesota  Standard  Policy,  and  dated  and  issued  July  14.  1899. 
On  August  22d  following  the  yacht  was  totally  destroyed  by  fire,  as 
alleged  in  the  complaint.  Proofs  of  loss  were  served  upon  defendant 
on  October  10.  1899.  Defendant  refused  to  settle  the  loss,  and  this 
action  followed. 

There  are  several  assignments  of  error,  but  the  main  question  for 
consideration  is  as  to  the  eft'ect  of  the  failure  on  the  part  of  the  in- 
sured to  make  and  serve  on  the  company  proofs  of  loss  within  the  time 
prescribed  by  the  terms  of  the  policy,  viz.  forthwith,  or,  as  we  have 
heretofore  held,  within  a  reasonable  time  after  the  loss.  The  trial  court 
charged  the  jury  that  plaintiff  had  failed  to  show  a  compliance  with 
such  provision,  but  that  it  was  not  material ;  that  the  failure  did  not 
invalidate  the  policy,  nor  prevent  a  recovery  for  an  actual  loss  there- 
tmder, — the  theory  of  the  court  evidently  being  that  as  the  policy  con- 
tains no  terms  of  forfeiture,  and  being  silent  as  to  the  effect  of  a 
failure  in  that  respect,  a  provision  rendering  the  policy  unenforcea- 
ble, and  the  rights  of  the  insured  forTeited,  could  not  be  read  into  it 
hy  judicial  construction. 

We  have  given  the  matter  very  careful  consideration,  and  reach 
the  conclusion  that  the  learned  trial  judge  correctly  disposed  of  the 
case.  His  charge  to  the  jury  was  in  line  with  the  general  trend  of  the 
authorities  on  the  subject,  and  in  full  accord  with  the  general  principles 
of  law  on  the  subject  of  forfeitures.  The  question  was  not  necessarily 
involved  or  considered  in  Rines  v.  Insurance  Co.,  78  Minn.  46,  80  N. 
W.  839.  nor  in  Fletcher  v.  Insurance  Co.,  79  Minn.  337,  82  N.  W. 
647,  and  is  now  before  the  court  for  the  first  time. 

On  the  subject  of  proofs  of  loss,  the  policy  provides  as  follows : 
"In  case  of  any  loss  or  damage  under  this  policy,  a  statement  in  writ- 
ing, signed  and  sworn  to  by  the  insured,  shall  be  forthwith  rendered 
to  the  company,  setting  forth  the  value  of  the  property  insured."  etc. 
It  further  provides  for  the  payment  of  any  such  loss  within  60  davs 
after  proofs  of  loss  are  served.  It  contains  several  provisions,  a  viola- 
tion or  failure  of  compliance  with  which  on  the  part  of  the  insured 
renders  it  wholly  void,  but  contains  no  provision  or  stipulation  giving 
any  such  effect  to  a  failure  to  serve  proper  proofs  of  loss  within  the 
time  therein  provided.  Nor  is  there  any  general  clause  in  the  policy  to 
that  eft'ect.     The  submission  to  arbitration  as  to  the  amount  of  loss, 

51  Part  of  tlie  opinion  is  omitted. 


382  THE  STANDARD   FIRE   POLICY 

where  the  parties  do  not  agree  upon  that  question,  is  made  a  condition 
precedent  to  the  right  of  action  on  the  policy.  The  policy  also  pro- 
vides that  an  action  thereon  must  be  brought  within  two  years  from 
the  date  of  the  loss,  but  contains  no  provision  making  the  service  of 
proofs  of  loss  within  the  time  specified  fatal  to  the  rights  of  the  in- 
sured, or  a  condition  precedent  to  the  liability  of  the  company. 

It  is  very  generally  held  by  the  authorities,  in  cases  where  this  ques- 
tion has  been  presented,  that  unless  the  policy  provides  a  forfeiture, 
or  makes  the  service  of  proofs  of  loss  within  the  time  specified  there- 
in a  condition  precedent  to  the  liability  of  the  company,  the  time  with- 
in which  such  proofs  are  required  to  be  furnished  is  not  of  the  essence 
of  the  contract.  Where  no  forfeiture  is  provided  by  the  terms  of 
the  contract,  and  the  service  of  proofs  of  loss  within  the  specified  time 
is  not  made  a  condition  precedent  to  the  liability  of  the  company, 
the  effect  of  such  failure  is  simply  to  postpone  the  day  of  payment. 
No  liability  attaches  to  the  company,  however,  until  such  proofs  are 
furnished  ;  but  unless  otherwise  provided,  expressly  or  by  fair  im- 
plication, it  is  not  important  that  the  proofs  be  not  in  fact  served 
within  the  time  stated  in  the  policy.  2  May,  Ins.  (4th  Ed.)  p.  1097, 
note  a;  Association  v.  Evans,  102  Pa.  281;  Carpenter  v.  Insurance 
Co.,  52  Hun,  249,  4  N.  Y.  Supp.  925 ;  Vangindertaelen  v.  Insurance 
Co.,  82  Wis.  112,  51  N.  W.  1122,  33  Am.  St.  Rep.  29;  Rynalski  v. 
Insurance  Co.,  96  Mich.  395,  55  N.  W.  981 ;  Assurance  Co.  v.  Hanna, 
60  Neb.  29,  82  N.  W.  97;  Steele  v.  Insurance  Co.,  93  Mich.  81,  53 
N.  W.  514.  18  L.  R.  A.  85;  Insurance  Co.  v.  Downs,  90  Ky.  236,  13 
S.  W.  882;  Insurance  Co.  v.  Mattingly,  77  Tex.  162,  13  S.  W.  1016; 
Kahnweiler  v.  Insurance  Co.  ( C.  C.)  57  Fed.  562 ;  Insurance  Co.  v. 
Knight,  111  Ga.  622,  36  S.  E.~821,  52  L.  R.  A.  70,  78  Am.  St.  Rep. 
216. 

It  was  held  by  this  court  in  Bowlin  v.  Insurance  Co.,  36  Minn.  433, 
31  N.  W.  859;  Shapiro  v.  Western  Home  Ins.  Co.,  51  Minn.  239,  53 
N.  W.  463;  Same  v.  St.  Paul  Fire  &  Marine  Ins.  Co.,  61  Minn. 
135,  63  N.  W.  614;  and  Ermentrout  v.  Insurance  Co.,  63  Minn.  305, 
65  N.  W.  635.  30  L.  R.  A.  346,  56  Am.  St.  Rep.  481,— that  a  failure 
of  strict  compliance  with  similar  provisions  in  the  policies  there  under 
consideration  was  a  condition  precedent  to  the  company's  liability,  but 
such  policies  contained  express  provisions  to  that  efifect,  and  the  de- 
cisions there  made  were  based  upon  that  fact.  The  cases  are  inap- 
plicable, and  not  in  point.  Though  the  policy  here  under  considera- 
tion is  identical  with  those  in  Rines  v.  Insurance  Co.  and  Fletcher  v. 
Insurance  Co.,  supra,  the  precise  question  now  before  the  court  was 
not  there  presented.  It  was  suggested  in  respondent's  brief  in  the 
latter  case,  but  was  not  argued  by  appellant.  It  was  there  assumed 
that  compliance  with  the  policy  was  essential  to  charge  the  company 
with  liability,  and  the  only  questions  decided  with  respect  to  this  im- 
mediate subject  were  that  "forthwith"  should  be  construed  to  mean 
within  a  reasonable  time,  and  that  what  would  constitute  a  reasonable 


NOTICE   AND    PROOFS   OF   LOSS  383 

time  was  a  question  of  fact  to  be  determined  from  the  evidence  and 
circumstances  of  each  case. 

There  is  much  force  in  the  contention  of  counsel  for  appellant  that 
the  insured  should  be  held  to  a  strict  compliance  with  this  provision 
of  the  policy.  There  is  every  reason  why  prompt  notice  should  be 
given  the  insurance  company.  Some  of  them  are  suggested  in  Fletcher 
v.  Insurance  Co.,  supra.  Immediate  notice,  or  notice  within  a  reason- 
able time,  will  afford  the  company  an  opportunity  to  make  investigation 
into  the  cause  of  the  fire,  which  may  be  essential  and  necessary  to  the 
protection  of  its  interests,  and  to  which  it  is  justly  entitled.  It  will 
afford  the  company  an  opportunity  to  detect  fraud,  if  any  be  connect- 
ed with  the  loss,  to  ascertain  the  nature  and  extent  of  the  loss,  and 
make  such  other  investigation  as  would  be  fruitless  after  long  delay. 
But  the  policy  before  us  contains  no  provisions  which  will  justify  a 
holding  that  a  strict  compliance  therewith  in  this  respect  is  essential, 
and  the  matter  must  be  referred  to  the  legislature  to  consider  and  ad- 
just by  proper  amendment  to  the  standard  policy  law,  if  such  amend- 
ment shall  be  deemed  just  and  equitable.     *     *     *     Affirmed. ^^ 

6  2  See,  also,  Welch  v.  Fire  Association,  120  Wis.  456,  98  N.  W.  227  (1904). 


384  TERMS    OF  THE  LIFE    POLICY 


TERMS  OF  THE  LIFE  POLICY 
I.  Designation  of  Beneficiary  *• 


LYONS  V.  YEREX. 

(Supreme  Court  of  Michigan,  1894.     100  Mich.  214.  58  N.  W.  1112,  43  Am. 

St.  Rep.  452.) 

Action  by  James  H.  Lyons  against  David  V.  Yerex  to  recover  pro- 
ceeds of  insurance  on  his  father's  life,  held  by  defendant,  because 
claimed  by  the  widow.  From  a  judgment  awarding  the  fund  to  the 
widow,  plaintiff  brings  error. 

McGrath,  C.  J.  On  the  30th  day  of  September  there  was  issued 
to  Harrison  H.  Lyons  a  certificate  of  membership  in  the  N^orthwestern 
Masonic  Aid  Association,  a  mutual  benefit  or  co-operative  insurance 
company,  which  was  made  payable  "to  the  heirs  at  law  of  the  said 
Harrison  H.  Lyons."  The  insured  died  intestate,  leaving  a  widow  and 
one  son.  By  agreement  the  money  was  paid  over  to  defendant,  who 
paid  one-half  thereof  to  plaintiff,  who  now  sues  to  recover  the  bal- 
ance, claiming  that  the  widow  is  not  entitled  to  share  in  the  proceeds 
of  the  policy. 

Under  our  statute  the  widow  takes  a  share  of  the  personal  prop- 
erty of  her  husband  as  distributed,  and  not  as  dowress,  and  is  an 
heir  as  to  such  property.  In  Hascall  v.  Cox,  49  Mich.  435,  440,  13 
N.  W.  807,  809,  it  is  said :  "  'Heirs'  is  a  technical  word,  and  when 
it  is  made  use  of  in  any  legal  instrument  there  is  a  presumption,  more 
or  less  strong,  according  to  the  circumstances,  that  it  is  employed  in 
a  technical  sense.  But  in  common  speech  the  word  is  frequently  used 
to  indicate  those  who  come  in  any  manner  to  the  ownership  of  any 
property  by  reason  of  the  death  of  an  owner,  and  may  then  include 
next  of  kin  and  legatees  as  well  as  those  who  take  by  descent.  And 
in  wills,  which  are  often  very  informal  instruments,  and  drawn  with- 
out legal  assistance,  the  word  is  sometimes  employed  with  quite  as 
little  regard  to  the  technical  sense." 

In  the  present  case  we  are  not  considering  the  use  of  the  word  in 
a  will,  but  in  a  contract  of  insurance,  in  which  the  insured  has  used 
the  word  to  designate  the  beneficiaries.  In  determining  the  significa- 
tion of  words  used  in  any  case  we  are  to  consider  all  the  surrounding 
circumstances.  The  original  purpose  of  such  contracts  on  the  part 
of  the  insured  is  to  make  provision  for  dependants.     It  is  most  prob- 

1  For  discussion  of  principles,  see  Vance  on  Insurance,  §  193.  See,  also, 
Cooley,  Briefs  on  the  Law  of  In.surance,  vol.  4,  p.  3720. 


DESIGNATION    OF   BKNEFICIART  385 

able  that  the  insured  was  actuated  by  the  motive  which  ordinarily 
prompts  men  to  take  out  insurance.  The  common  acceptation  of  the 
term  "heir"  has  already  been  referred  to.  The  statute  makes  the 
widow  an  heir  as  to  personal  property,  and  the  wife  is  within  the  class 
of  persons  protected  and  sought  to  be  protected  by  this  class  of  in- 
surance. 

In  Tillman  v.  Davis,  95  N.  Y.  17,  47  Am.  Rep.  1,  cited  by  plaintiff, 
the  court  w^as  construing  a  will  in  which  the  testatrix  was  dealing  with 
both  real  and  personal  property,  and  the  court  held  that  the  word 
"heirs"  w^as  used  to  designate  blood  relations.  In  Griswold  v.  Saw- 
yer, 125  N.  Y.  411,  26  N.  E.  464,  it  was  held  that  the  term  "legal 
representatives,"  as  used  in  a  life  insurance  policy,  includes  the  widow. 
The  opinion  was  written  by  the  same  justice  who  wrote  Tillman  v. 
Davis.  The  court  say:  "Air.  Griswold  was  not  a  lawyer,  and  hence 
cannot  be  supposed  to  have  used  these  words  in  their  strict,  technical 
legal  sense,  but  it  is  more  reasonable  to  suppose  that  he  used  them  in 
the  general  sense  in  which  they  are  frequently  used  and  generally  un- 
derstood by  laymen." 

In  Kaiser  v.  Kaiser,  13  Daly  (X.  Y.)  522,  it  was  held  that  the  words 
"legal  heirs,"  used  in  a  certificate  of  membership  in  a  mutual  insur- 
ance association,  include  the  widow.  Bookstaver,  J.,  says :  "We  think 
all  this  inconsistent  with  the  theory  that  he  used  the  phrase  'legal 
heirs'  in  its  ordinary  acceptation,  but  we  think  that  he  intended  there- 
by to  designate  his  wife  and  children,  if  he  should  leave  any;  and 
this  is  the  meaning  often  attached  to  the  phrase  by  the  unlearned, 
especially  when  only  personal  property  is  concerned." 

Gauch  V.  Insurance  Co.,  88  111.  251,  30  Am.  Rep.  554,  is  also  cited, 
but  the  court  there  held  that  under  the  statute  the  widow  did  not  take 
an  interest  in  her  husband's  personal  property  as  a  distributee  but 
as  dowress.  In  Lawwill  v.  Lawwill,  29  111.  App.  643,  decedent  held 
a  policy  in  the  ISIasonic  Benefit  Association,  payable  to  his  legal  heirs. 
He  died,  leaving  a  widow,  but  no  children.  The  statute  provided  that, 
in  case  the  husband  died  without  issue,  the  widow  should  take  all  the 
personal  property.  The  court  held  that  the  widow  was  within  the 
contingencies  specified  in  the  statute,  and  was  the  heir  at  law  to  his 
estate,  and  that  the  word  "heirs,"  when  uncontrolled  by  the  context, 
must  be  construed  to  mean  the  persons  designated  by  the  statute  as 
such  in  case  of  intestacy.  See.  also.  Association  v.  Hoffman,  110  111. 
603,  and  Alexander  v.  Association,  126  111.  558,  18  N.  E.  556,  2  L 
R.  A.  161. 

In  Johnson  v.  Supreme  Lodge,  53  Ark.  255,  13  S.  W.  794,  8  L.  R. 
A.  732,  Battle,  J.,  says :  "Suffice  it  to  say  that  the  weight  of  authority 
holds  that  the  word  'heir,'  when  used  in  any  instrument  to  designate 
the  persons  to  whom  personal  property  is  thereby  transferred,  given, 
or  bequeathed,  and  the  context  does  not  explain  it,  means  those  who 
would,  under  the  statute  of  distributions,  be  entitled  to  the  personal 
CooLEY  Ins. — 25 


386  TERMS    OF  THE   LIFE    POLICY 

estate  of  the  persons  of  whom  they  are  mentioned  as  heirs,  in  the 
event  of  death  and  insolvency.  *  *  *  j^  many  states  where  the 
widow  is  entitled  to  take  under  the  statute  of  distribution  she  is  held 
to  be  heir  of  her  deceased  husband  as  to  his  personal  estate,  but  it  is 
different  in  this  state.  *  *  *  It  is  true  that  section  2592,  Mansf. 
Dig.,  provides :  'If  a  husband  die,  leaving  a  widow  and  no  children, 
such  widow  shall  be  endowed  of  one-half  of  the  real  estate  of  which 
such  husband  died  seised,  and  one-half  of  the  personal  estate,  abso- 
lutely in  her  own  right.'  But  she  takes  the  one-half  of  the  personal 
estate  as  dower,  absolutely  and  independent  of  creditors  and  not  as  a 
distributive  share." 

In  Bailey  v.  Bailey,  25  Mich.  185 ;  Barnett  v.  Powers,  40  Mich.  317; 
Richardson  v.  Martin,  55  N.  H.  45;  Ivins'  Appeal,  106  Pa.  176,  51 
Am.  Rep.  516;  Luce  v.  Dunham,  69  N.  Y.  36;  and  Dodge's  Appeal, 
106  Pa.  216,  51  Am.  Rep.  519, — the  property  with  reference  to  which 
the  word  was  used  was  real  estate.  In  the  latter  case,  Sterrett,  J., 
in  the  opinion,  says :  "If  the  fund  for  distribution  was  personalty,  the 
widow  would  perhaps  be  entitled  to  participate  therein." 

In  De  Beauvoir  v.  De  Beauvoir,  3  H.  L.  Cas.  537,  the  property 
devised  was  both  real  and  personal.  The  court  says :  "On  the  face 
of  the  will  it  was  the  intention  of  the  testator  to  make  the  two  funds 
a  blended  property,  and  to  give  them  the  character  of  real  estate,  and 
to  make  both  the  properties  go  together." 

Nibl.  Mut.  Ben.  Soc.  §  247,  says :  "At  common  law  one's  heirs  are 
the  persons  who  would  inherit  his  real  estate  by  right  of  blood.  The 
statutes  of  adoption  and  those  of  descent  have,  in  every  state,  to  a 
greater  or  less  degree,  enlarged  the  meaning  of  the  word,  so  that  it 
may  include  persons  not  of  the  blood  of  the  intestate.  At  common 
law  the  word  has  no  reference  to  the  distribution  of  an}'^  personalty, 
and  this  rule  has  not  been  disturbed  by  statute  in  some  states.  In 
those  states,  therefore,  where  this  common-law  rule  obtains,  the  word 
'heirs,'  in  a  statute  setting  forth  a  class  of  persons  who  may  take  the 
fund,  or  in  a  certificate  designating  the  persons  who  shall  take  the 
fund  on  the  member's  death,  must  be  taken  to  mean  the  person  or 
persons  to  whom  the  real  estate  of  the  member  will  pass  under  the 
statutes  of  descent,  whether  such  person  or  persons  be  akin  to  him  or 
not.  In  most  states,  however,  the  statutes  provide  not  only  who  shall 
inherit  the  realty  of  an  intestate,  but  also  who  shall  be  the  heirs  of 
his  personal  property." 

The  same  author,  at  section  248,  says :  "Nothing  is  more  natural, 
therefore,  than  to  regard  the  heirs  of  the  intestate's  personal  property 
as  the  beneficiaries  designated  in  the  contract  of  insurance  as  'my 
heirs.'"  See  Houghton  v.  Kendall,  7  Allen  (Mass.)  72;  White  v. 
Stanfield,  146  Mass.  424,  15  N.  E.  919;  Addison  v.  Association.  144 
Mass.  591,  12  N.  E.  407;  Collier  v.  Collier,  3  Ohio  St.  374;  Eby's 
Appeal,  84  Pa.  241 ;  Freeman  v.  Knight,  2)7  N.  C.  72 ;  Insurance  Co. 
V.  Miller,  13  Bush.  (Ky.)  489;   Wilburn  v.  Wilburn,  83  Ind.  55;   Cos- 


SUICIDE  — WHEN    NOT    EXCEPTED   IN    THE    POLICY  387 

ling  V.   Caldwell,   1   Lea  (Tenn.)  454,  27  Am.  Rep.   774;    Ward  v. 
Saunders,  3  Sneed  (Tenn.)  387;  Croom  v.  Herring,  11  N.  C.  393. 

Under  the  circumstances,  we  think  it  must  be  presumed  that  by  the 
use  of  the  words  "my  heirs"  the  insured  intended  to  include  those 
designated  by  the  statute  as  such,  and  to  whom  the  law  would  give 
that  class  of  property  in  case  of  intestacy.  The  judgment  must  there- 
fore be  affirmed. 


II.  Suicide — When  Not  Excepted  in  the  Policy 


SEILER  V.   ECONOMIC  LIFE  ASS'N   OF   CLINTON. 

(Supreme  Court  of  Iowa,  1S98.     105  Iowa,  87,  74  N.  W.  941,  43  L.  R.  A.  537.) 

Plaintiffs  sue  to  recover  insurance  upon  the  life  of  one  Joseph  Seiler, 
deceased.  Two  actions  were  brought,  each  upon  a  different  policy. 
The  actions  were  consolidated  in  the  trial  court.  Defendant  made  one 
answer  to  the  two  claims,  as  combined.  There  was  a  trial  to  jury, 
verdict  and  judgment  for  plaintiff's,  and  defendant  appeals. 

Waterman,  J.=*  The  undisputed  facts  in  the  case  are  that  the  de- 
fendant company  issued  to  one  Joseph  Seiler  the  two  policies  in  suit, 
numbered,  respectively,  17,146  and  17,147.  By  these  policies  the  life 
of  said  Seiler  was  insured  for  the  benefit  of  the  plaintiffs  in  the  sum 
of  $2,000;  each  policy  being  for  the  sum  of  $1,000.  Both  of  these 
policies  were  issued  upon  a  single  application.  This  application  was 
signed,  "Joseph  Seiler ;"  and  a  copy  thereof,  with  the  exception  that 
the  signature  was  omitted,  and  in  its  place  appeared  the  word  "Signed," 
was  attached  to  policy  No.  17,146.  No  copy  or  purported  copy  of 
the  application  was  attached  to  policy  No.  17,147,  but  there  was  an 
indorsement  thereon  in  these  words :  "For  copy  of  application,  see 
policy  No.  17,146,  issued  to  same  party."  The  policies  were  taken 
out  on  the  31st  day  of  August,  1895;  and,  on  the  7th  day  of  October 
following,  Seiler  committed  suicide.  The  policies  contained  no  pro- 
vision in  relation  to  suicide,  but  there  was  this  clause  in  the  applica- 
tion, "I  also  warrant  and  agree  that  I  will  not  die  by  my  own  act. 
whether  sane  or  insane,  during  the  period  of  three  years  following 
the  date  of  issue  of  the  policy  for  which  application  is  hereby  made." 

The  defense  of  suicide  was  set  up  in  two  forms.  In  one,  as  we  have 
said,  it  went  to  the  jury.  The  paragraph  of  the  answer  to  which  the 
demurrer  was  sustained  was  as  follows :   "That  the  said  Joseph  Seiler 

2  For  cliscnssiou  of  r-rinciples.  see  Vauoe  on  Insurance.  §§  195,  196.  See, 
also,  Coolpy,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3224. 

3  Part  of  the  opinion  is  omitted. 


388  TERMS    OF   THE   LIFE    POLICY 

on  or  about  the  7th  day  of  October,  1895,  and  while  in  sane  mental 
condition,  and  able  to  understand  the  moral  character  and  consequences 
of  his  act,  committed  suicide,  and  intentionally  and  purposely  killed 
himself,  by  shooting.  The  question  thus  presented  by  the  ruling  on 
the  demurrer  is :  If  a  policy  of  insurance  on  life,  containing  no  stipu- 
lation as  to  suicide,  is  taken  out  in  good  faith  by  the  assured,  will  it 
be  avoided,  as  against  a  beneficiary  named  therein,  by  the  fact  that  the 
assured  thereafter,  while  sane,  deliberately  and  purposely  took  his 
own  life?  The  authorities  are  not  many  on  the  subject,  and  they  are 
not  seriously  in  conflict.  While  there  are  a  number  of  cases  in  which 
something,  has  been  said  upon  this  matter  in  the  way  of  dicta,  there 
is  but  one  in  which  it  has  been  expressly  decided  that  the  sviicide  of 
the  assured,  if  sane,  will  avoid  a  policy  that  contains  no  provision 
of  forfeiture  in  such  case ;  and  that  is  Ritter  v.  Insurance  Co.,  169 
U.  S.  139,  18  Sup.  Ct.  300,  42  L.  Ed.  693,  decided  at  the  October 
term  of  the  federal  supreme  court.  The  opinion  in  this  case  in  the 
circuit  court  of  appeals  appears  in  17  C.  C.  A.  537,  and  70  Fed.  954, 
42  L.  R.  A.  583.  This  last  citation  is  given  because  we  shall  have 
occasion  to  refer  to  this  opinion  in  the  course  of  what  we  shall  say. 
It  was  held  in  the  Ritter  Case  that  there  could  be  no  recovery  on  a 
policy  of  insurance  by  the  executor  of  one  who,  while  sane,  intention- 
ally took  his  own  life,  even  though  the  policy  contained  no  clause  of 
forfeiture  because  of  such  act.  We  think  that  case  is  readily  dis- 
tinguishable from  the  case  at  bar.  In  the  Ritter  Case  the  action  was 
brought  by  the  personal  representative  of  the  assured,  whose  claim 
had  to  be  made  through  the  wrongdoer,  while  here  the  suit  is  insti- 
tuted by  beneficiaries  named  in  the  policy,  and  who  claim  in  their  own 
right. 

An  investigation  will  disclose  that  the  distinction  we  make  is  mate- 
rial, and  supported  by  authority.  In  Moore  v.  Woolsey,  4  El.  &  Bl. 
243,  the  policy  contained  a  stipulation  avoiding  it,  as  far  as  regarded 
the  executors  and  administrators  of  the  assured,  if  he  died  by  his  own 
hand,  but  leaving  it  in  force  to  the  extent  of  any  interest  acquired  by 
a  third  person.  The  plea  was  that  the  assured  had  committed  suicide. 
Replication  that  one  Kettle,  before  the  death  of  the  assured,  had  ac- 
quired by  assignment  an  interest  in  the  policy.  Upon  these  issues,  Lord 
Campbell,  delivering  the  opinion,  said :  "If  a  man  insures  his  life  for 
a  year,  and  commits  suicide  within  the  year,  his  executors  cannot  re- 
cover upon  the  policy,  as  the  owner  of  a  ship,  who  insures  her  for  a 
year,  cannot  recover  upon  the  policy  if  within  the  year  he  cause  her 
to  be  sunk.  A  stipulation  that  in  either  case  upon  such  an  event  the 
policy  would  give  a  right  of  action  would  be  void."  This  is  the  lan- 
guage quoted  in  the  Ritter  Case,  and  it  was  obiter  only.  But  Lord 
Campbell  said  something  more,  and  something,  not  oidy  pertinent  to 
the  issues  before  him,  but  that  has  direct  application  to  the  matter  we 
are  considering.  He  continues :  "But,  v.here  a  man  insures  his  own 
life,  we  can  discover  no  illegality  in  a  stipulation  that  if  the  policy 


SUICIDE — WHEN    NOT    EXCEPTED    IN    THE    POLICY  389 

should  afterwards  be  assigned,  bona  fide,  for  a  valuable  consideration, 
or  a  lien  upon  it  should  afterwards  be  acquired,  bona  fide,  for  a  val- 
viable  consideration,  it  might  be  enforced  for  the  benefit  of  others, 
whatever  may  be  the  means  of  his  death.  *  *  *  The  supposed 
inducement  to  commit  suicide  under  such  circumstances  cannot  vitiate 
the  condition,  more  than  the  inducement  which  the  lessor  may  be  sup- 
posed to  have  to  commit  murder  should  render  invalid  a  beneficial  lease 
granted  for  lives.  When  we  are  called  upon  to  nullify  a  contract  on 
the  ground  of  public  policy,  we  must  take  care  that  we  do  not  lay 
down  a  rule  which  may  interfere  with  the  innocent  and  useful  transac- 
tions of  mankind." 

If  public  policy  does  not  stand  in  the  way  of  a  recovery  by  an  as- 
signee, we  can  discern  no  reason  why  it  should  in  the  case  of  a  bene- 
ficiary named  in  the  contract.  It  may  be  said  that  the  assignee  spoken 
of  is  one  whose  claim  rests  upon  a  consideration  paid.  To  this  we 
would  say  that  the  claim  of  the  beneficiary  is  also  based  upon  a  con- 
sideration paid  by  the  assured.  If  it  should  further  be  said  that  pub- 
lic policy  does  not  bar  a  recovery  by  the  assignee  because  the  interests 
of  creditors  furnish  little  or  no  motive  for  the  self-destruction  of  the 
assured,  our  answer  would  be  this:  The  motives  for  suicide  are  mani- 
fold and  varied.  An  inquiry  as  to  what  inducement  is  most  likely  to 
impel  one  to  the  act  is  profitless,  for  any  rule  of  law  that  would  pre- 
vent a  recovery  by  these  plaintiffs  would  operate  in  like  manner  against 
a  mere  creditor,  if  he  were  the  beneficiary  named. 

And,  further,  we  might  call  attention  to  the  Ritter  Case,  in  which 
the  assured  admittedly  sacrificed  his  life  for  the  benefit  of  his  cred- 
itors. In  the  opinion  in  the  Ritter  Case  in  the  circuit  court  of  appeals 
it  is  said :  "In  the  cases  brought  to  our  attention  where  suicide  during 
sanity,  by  the  person  whose  life  was  insured,  was  held  not  to  be  a  valid 
defense,  the  policy  was  issued  for  the  benefit  of  some  other  person,  or 
an  independent  interest,  by  assignment  or  otherwise,  had  been  ac- 
quired by  a  third  person."  Here  is  the  distinction  plainly  made.  So, 
also,  in  the  opinion  of  Mr.  Justice  Harlan  on  appeal,  we  think  the 
same  idea  is  expressed.  In  commenting  on  an  expression  used  in  an- 
other case,  he  says :  "This  observation  was  irrelevant  to  the  case  before 
the  court,  and  cannot  be  regarded  as  determining  the  point  in  judg- 
ment. If  it  was  meant  there  could  be  a  recovery  by  the  personal  rep- 
resentative,    *     *     *     ^ve  cannot  concur  in  that  view." 

Another  and  a  convincing  reason  for  thinking  that  the  doctrine  an- 
nounced in  the  Ritter  Case  was  not  intended  to  go  further  than  to 
deny  a  right  of  recovery  to  the  personal  representatives  of  the  assured 
is  that  no  one  of  the  several  cases  in  which  beneficiaries  named  in  the 
contract  have  been  held  entitled  to  recover  was  mentioned  in  that  opin- 
ion.   We  shall  now  refer  to  these  cases : 

Fitch  V.  Insurance  Co.,  59  N.  Y.  559,  17  Am.  Rep.  372.  is  the  first. 
Suit  was  brought  by  the  w^idow,  to  whom  the  policy  was  payable.  The 
contract  contained  no  clause  avoiding  it  in  case  of  suicide  by  the  as- 


390  TERMS    OF   THE   LIFE    POLICY 

sured.  One  defense  tendered  was  that  the  assured  took  his  own  life. 
Evidence  to  sustain  it  was  excluded  by  the  trial  court.  In  affirming  this 
ruling  the  court  of  appeals  says :  "The  policy  contained!  no  stipulation 
that  it  should  be  void  in  case  of  the  death  of  the  insured  by  suicide. 
It  was  not  taken  out  for  the  benefit  of  Fitch,  but  of  his  wife  and  chil- 
dren. Although  they  were  bound  by  his  representations,  and  any  fraud 
he  may  have  committed  in  taking  out  the  policy,  the  policy  having  been 
obtained  through  his  agency,  yet  they  were  not  bound  by  any  acts  or 
declarations  done  or  made  by  him  after  the  issue  of  the  policy,  unless 
such  acts  were  in  violation  of  some  condition  of  the  policy." 

In  Darrow  v.  Society,  116  N.  Y.  SZ7 ,  22  N.  E.  1093,  6  L.  R.  A. 
495,  15  Am.  St.  Rep.  430,  the  plaintii?  was  the  beneficiary  under  the 
contract.  The  assured  committed  suicide.  There  was  a  provision  in 
the  policy  that  it  should  "be  void  if  the  member  herein  shall  die  in 
consequence  of  a  duel,  or  by  the  hands  of  justice,  or  in  violation  of, 
or  an  attempt  to  violate,  any  criminal  law  of  the  United  States,  or 
of  any  state  or  country  in  which  the  member  may  be."  Held  that, 
suicide  not  being  a  crime  in  New  York,  the  condition  of  the  policy 
was  not  violated,  and  the  plaintifif  could  recover. 

Kerr  v.  Association,  39  Minn.  174,  39  N.  W.  312,  12  Am.  St.  Rep. 
631,  is  a  case  similar  in  principle  to  the  last.  The  same  holding  in 
favor  of  a  beneficiary  has  been  made  by  this  court  in  Goodwin  v.  So- 
ciety, supra  [97  Iowa,  226,  66  N.  W.  157,  32  L.  R.  A.  473.  59  Am. 
St.  Rep.  411].  The  policy  sued  upon  provided  for  its  forfeiture  in 
the  event  of  suicide  within  two  years,  and  by  its  express  terms  it  was 
incontestable  after  that  time.  After  the  lapse  of  that  period  the  as- 
sured took  his  own  life.  The  policy  was  issued  to  the  wife.  In  an  ac- 
tion by  her,  we  held  she  could  recover.  Now,  if  suicide  is  a  risk  that 
the  company  is  forbidden,  by  considerations  of  public  policy,  to  take, 
it  could  not  have  been  held  as  within  the  agreement  not  to  contest ;  for, 
if  a  contract  to  insure  as  against  the  risk  of  suicide  is  void,  the  waiver 
here  must  have  been  invalid,  and  the  defense  should  have  been  sus- 
tained. The  question  was  brought  directly  to  the  attention  of  the  court 
in  argument,  as  appears  from  the  language  of  the  opinion. 

These  are  the  cases  which  we  have  been  able  to  find.  We  wish  now 
to  add  a  few  words  on  principle,  by  way  of  emphasis  of  a  thought  al- 
ready expressed.  It  is  not  the  wrongdoer  who  makes  claim  here,  nor 
any  representative  whose  rights  are  to  be  measured  by  those  of  the 
wrongdoer,  but  persons  who  acquired  an  interest  at  the  time  the  policy 
was  taken  out,  and  who  are  not  in  any  way  responsible  for  the  loss 
under  it.  The  defendant  might  well  have  guarded  against  this  con- 
tingency in  its  contract.  Not  having  done  so,  we  think  it  is  now  in 
no  position  to  complain.     *     *     *     Affirmed.* 

4  Accord:  Kerr  v.  Minnesota  Mut.  Ben.  Ass'n.  39  Minn.  174,  39  N.  W.  312, 
12  Am.  St.  Rep.  631  (1888).  Tattergon  v.  Natural  Prem.  Mut.  Life  Ins.  Co., 
100  Wis.  118,  75  N.  W.  980,  42  L.  R.  A.  253,  G9  Am.  St.  Rep.  899  (1898). 


SUICIDE — WHEN    EXCEPTED    IN    POLICY  391 


III,  Suicide — When   Excepted  in  the   Policy 


BIGELOW  V.  BERKSHIRE  LIFE  INS.  CO. 

(Supreme  Court  of  Fuited  States.  1S76.  93  U.  S.  284,  23  L.  Ed.  018.) 

Error  to  the  Circuit  Court  of  the  United  States  for  the  Xorthern 
District  of  Ilhnois. 

This  is  an  action  on  two  poHcies  issued  by  the  defendant  on  the 
life  of  Henry  W.  Bigelow.  Each  contained  a  condition  in  avoidance, 
if  the  insured  should  die  by  suicide,  sane  or  insane ;  and  in  such  case 
the  company  agreed  to  pay  to  the  party  in  interest  the  surrender 
value  of  the  policy  at  the  time  of  the  death  of  Bigelow.  The  defend- 
ant pleaded  that  Bigelow  died  from  the  effects  of  a  pistol-wound  in- 
flicted upon  his  person  by  his  own  hand,  and  that  he  intended  by  this 
means  to  destroy  his  life.  To  this  the  plaintiffs  replied,  that  Bigelow, 
at  the  time  when  he  inflicted  the  pistol-wound  upon  his  person  by  his 
own  hand,  was  of  unsound  mind,  and  wholly  unconscious  of  the  act. 
A  demurrer  to  this  replication  was  sustained  by  the  court  below,  and 
the  plaintiffs  bring  the  case  here  for  review. 

Mr.  Justice  Davis  delivered  the  opinion  of  the  court. 

There  has  been  a  great  diversity  of  judicial  opinion  as  to  whether 
self-destruction  by  a  man,  in  a  fit  of  insanity,  is  within  the  condition  of 
a  life  policy,  where  the  words  of  exemption  are  that  the  insured  "shall 
commit  suicide,"  or  "shall  die  by  his  own  hand."  But  since  the  deci- 
sion in  Life  Ins.  Co.  v.  Terry,  15  Wall.  580,  21  L.  Ed.  236,  the  ques- 
tion is  no  longer  an  open  one  in  this  court.  In  that  case  the  words 
avoiding  the  policy  were,  "shall  die  by  his  own  hand" ;  and  we  held 
that  they  referred  to  an  act  of  criminal  self-destruction,  and  did  not 
apply  to  an  insane  person  who  took  his  own  life.  But  the  insurers 
in  this  case  have  gone  further,  and  sought  to  avoid  altogether  this 
class  of  risks.  If  they  have  succeeded  in  doing  so,  it  is  our  duty  to 
give  effect  to  the  contract ;  as  neither  the  policy  of  the  law  nor  sound 
morals  forbid  them  to  make  it.  If  they  are  at  liberty  to  stipulate 
against  hazardous  occupations,  unhealthy  climates,  or  death  by  the 
hands  of  the  law,  or  in  consequence  of  injuries  received  when  intox- 
icated, surely  it  is  competent  for  them  to  stipulate  against  intentional 
self-destruction,  whether  it  be  the  voluntary  act  of  an  accountable 
moral  agent  or  not.  It  is  not  perceived  why  they  cannot  limit  their 
liability,  if  the  assured  is  in  proper  language  told  6f  the  extent  of 
the  limitation,  and  it  is  not  against  public  policy.  The  words  of  this 
stipulation,  "shall  die  by  suicide   (sane  or  insane),"  must  receive  a 

5  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  197-199.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3224. 


392  TERMS    OF  THE  LIFE    POLICY 

reasonable  construction.  If  they  be  taken  in  a  strictly  literal  sense, 
their  meaning  might  admit  of  discussion;  but  it  is  obvious  that  they 
were  not  so  used.  "Shall  die  by  his  own  hand,  sane  or  insane,"  is, 
doubtless,  a  more  accurate  mode  of  expression ;  but  it  does  not  more 
clearly  declare  the  intention  of  the  parties. 

Besides,  the  authorities  uniformly  treat  the  terms  "suicide"  and  "dy- 
ing by  one's  own  hand,"  in  policies  of  life  insurance,  as  synonymous, 
and  the  popular  understanding  accords  with  this  interpretation.  Chief 
Justice  Tindall,  in  Borradaile  v.  Hunter,  5  Mann.  &  Gr.  668,  says, 
"The  expression,  'dying  by  his  own  hand,'  is,  in  fact,  no  more  than 
the  translation  into  English  of  the  word  of  Latin  origin,  'suicide.'  " 
Life  insurance  companies  indiscriminately  use  either  phrase,  as  con- 
veying the  same  idea.  If  the  words,  "shall  commit  suicide,"  standing 
alone  in  a  policy,  import  self-murder,  so  do  the  words,  "shall  die  by 
his  own  hand."  Either  mode  of  expression,  when  accompanied  by 
qualifying  words,  must  receive  the  same  construction.  This  being  so, 
there  is  no  difficulty  in  defining  the  sense  in  which  the  language  of 
this  condition  should  be  received.  Felonious  suicide  was  not  alone  in 
the  contemplation  of  the  parties.  If  it  had  been,  there  was  no  neces- 
sity of  adding  anything  to  the  general  words,  which  had  been  con- 
strued by  many  courts  of  high  authority  as  not  denoting  self-destruc- 
tion by  an  insane  man.  Such  a  man  could  not  commit  felony ;  but, 
conscious  of  the  physical  nature,  although  not  of  the  criminality,  of 
the  act,  he  could  take  his  own  life,  with  a  settled  purpose  to  do  so. 

As  the  line  between  sanity  and  insanity  is  often  shadowy  and  diffi- 
cult to  define,  this  company  thought  proper  to  take  the  subject  from 
the  domain  of  controversy,  and  by  express  stipulation  preclude  all 
liability  by  reason  of  the  death  of  the  insured  by  his  own  act,  whether 
he  was  at  the  time  a  responsible  moral  agent  or  not.  Nothing  can 
be  clearer  than  that  the  words,  "sane  or  insane,"  were  introduced  for 
the  purpose  of  excepting  from  the  operation  of  the  policy  any  in- 
tended self-destruction,  whether  the  insured  was  of  sound  mind  or 
in  a  state  of  insanity.  These  words  have  a  precise,  definite,  well- 
understood  meaning.  No  one  could  be  misled  by  them;  nor  could 
an  expansion  of  this  language  more  clearly  express  the  intention  of 
the  parties.  In  the  popular,  as  well  as  the  legal,  sense,  suicide  means, 
as  we  have  seen,  the  death  of  a  party  by  his  own  voluntary  act;  and 
this  condition,  based,  as  it  is,  on  the  construction  of  this  language, 
informed  the  holder  of  the  policy,  that,  if  he  purposely  destroyed  his 
own  life,  the  company  would  be  relieved  from  liability. 

It  is  unnecessary  to  discuss  the  various  phases  of  insanity,  in  order 
to  determine  whether  a  state  of  circumstances  might  not  possibly  arise 
which  would  defeat  the  condition.  It  will  be  time  to  decide  that  ques- 
tion when  such  a  case  is  presented.  For  the  purposes  of  this  suit,  it 
is  enough  to  say,  that  the  policy  was  rendered  void,  if  the  insured  was 
conscious  of  the  physical  nature  of  his  act,  and  intended  by  it  to  cause 


SUICIDE — WHEN    EXCEPTED   IN    POLICY  393 

his  death,  although,  at  the  time,  he  was  incapable  oi  judging  between 
right  and  wrong,  and  of  understanding  the  moral  consequences  of 
what  he  was  doing. 

Insurance  companies  have  only  recently  inserted  in  the  provisos  to 
their  policies  words  of  limitation  corresponding  to  those  used  in  this 
case.  There  has  been,  therefore,  but  little  occasion  for  courts  to  pass 
upon  them.  But  the  direct  question  presented  here  was  before  the 
Supreme  Court  of  \\'isconsin  in  1874,  in  Pierce  v.  Travelers'  Life  In- 
surance Company,  34  Wis.  389,  and  received  the  same  solution  we  have 
given  it.  More  words  were  there  used  than  are  contained  in  this  pro- 
viso; but  the  effect  is  the  same  as  if  they  had  been  omitted.  To  say 
that  the  company  will  not  be  liable  if  the  insured  shall  die  by  "suicide, 
felonious  or  otherwise,"  is  the  same  as  declaring  its  non-liability,  if 
he  shall  die  by  "suicide,  sane  or  insane."  They  are  equivalent  phrases. 
Neither  the  reasoning  nor  the  opinion  of  that  court  is  at  all  affected 
by  the  introduction  of  words  which  are  not  common  to  both  policies. 

It  remains  to  be  seen  whether  the  court  below  erred  in  sustaining 
the  demurrer.  The  replication  concedes,  in  effect,  all  that  is  alleged 
in  the  plea;  but  avers  that  the  insured  at  the  time  "was  of  unsound 
mind,  and  wholly  unconscious  of  the  act."  These  words  are  identical 
with  those  in  the  replication  to  the  plea  in  Breasted  v.  Farmers'  Loan 
&  Trust  Company,  4  Hill  (N.  Y.)  73 ;  and  Judge  Nelson  treated  them 
as  an  averment  that  the  assured  was  insane  when  he  destroyed  his 
life.  They  can  be  construed  in  no  other  way.  If  the  insured  had 
perished  by  the  accidental  discharge  of  the  pistol,  the  replication  would 
have  traversed  the  plea.  Instead  of  this,  it  confesses  that  he  inten- 
tionally took  his  own  life ;  and  it  attempts  to  avoid  the  bar  by  set- 
ting up  a  state  of  insanity.  The  phrase,  "wholly  unconscious  of  the 
act,"  refers  to  the  real  nature  and  character  of  the  act  as  a  crime,  and 
not  to  the  mere  act  itself.  Bigelow  knew  that  he  was  taking  his  own 
life,  and  showed  sufficient  intelligence  to  employ  a  loaded  pistol  to  ac- 
complish his  purpose;  but  he  was  unconscious  of  the  great  crime  he 
was  committing.  His  darkened  mind  did  not  enable  him  to  see  or  ap- 
preciate the  moral  character  of  his  act,  but  still  left  him  capacity 
enough  to  understand  its  physical  nature  and  consequences. 

In  the  view  we  take  of  the  case,  enough  has  been  said  to  show  that 
the  court  did  not  err  in  holding  that  the  replication  was  bad.  Judg- 
ment affirmed.*' 

6  See.  also,  Scherar  v.  Prudential  Ins.  Co.,  63  Neb.  530,  S8  N.  W.  6S7.  56 
L.  R.  A.  611  (1902)  in  which  the  policy  pi'ovided  that  if  the  insured  should 
commit  suicide  within  three  years  from  the  date  of  the  policy  the  liability 
of  the  company  should  be  limited  to  the  amount  of  premiums  paid. 


39i  TERMS    OF  THE  LIFE    POLICY 


IV.  Death  in  Violation  of  Law  ^ 


COLLINS  V.  METROPOLITAN  LIFE  INS.  CO. 

(Supreme  Court  of  Illinois.  1907.    2.32  111.  37,  83  N.  E.  542,  14  L.  R.  A.  [N.  S.] 
356,  122  Am.  St.  Rep.  54,  13  Ann.  Cas.  129.) 

Action  by  Hugh  ColHns,  as  executor  of  the  estate  of  Robert  Kil- 
patrick,  deceased,  against  the  MetropoHtan  Life  Insurance  Company, 
on  a  Hfe  insurance  policy  issued  by  that  company  on  the  life  of  Robert 
Kilpatrick.  The  policy  provided  that  it  should  be  incontestable  after 
two  years  except  for  the  nonpayment  of  premiums  or  for  fraud.  Two 
defenses  are  set  up  in  the  pleas  of  the  insurance  company :  First,  that 
Kilpatrick  was  indicted,  tried,  convicted,  and  executed  for  murder ; 
second,  that  in  1903  the  plaintiff  commenced  a  suit  in  the  court  of 
common  pleas  of  Philadelphia  against  the  insurance  company  on  the 
same  policy  declared  on  in  this  suit ;  that  a  rule  was  entered  upon 
the  defendant  by  that  court  to  file  its  affidavit  of  defense ;  that  the 
defendant  filed  its  affidavit,  setting  up  the  indictment,  trial,  conviction, 
and  execution  of  Kilpatrick  on  the  charge  of  murder,  and  that  it  was 
adjudged  and  decided  by  said  court  that  on  the  ground  of  public  policy, 
the  insured  having  been  executed  for  a  crime,  the  plaintiff  could  not 
recover ;  that  the  plaintiff  took  an  appeal  to  the  superior  court  of 
Pennsylvania,  and  upon  such  appeal  the  superior  court  decided  that  the 
facts  alleged  in  the  affidavit  constituted  a  good  defense  to  said  suit, 
and  dismissed  the  plaintiff's  appeal  at  the  cost  of  the  plaintiff,  but  with- 
out prejudice.  The  plea  setting  up  the  latter  defense  contained  aver- 
ments of  facts  showing  jurisdiction  of  the  court  over  the  parties  and 
subject-matter.  The  plaintiff  below  demurred  to  the  pleas.  The  de- 
murrer was  overruled,  and,  the  plaintiff  electing  to  abide  his  demur- 
rer, the  court  gave  judgment  against  him  for  costs.  Upon  an  appeal 
to  the  Appellate  Court  for  the  First  District,  the  judgment  of  the 
circuit  court  of  Cook  county  was  affirmed.  The  case  comes  to  this 
court  on  a  certificate  of  importance,  the  amount  involved  being  less 
than  $1,000.« 

ViCKERS,  J.  Whether  the  legal  execution  of  the  assured  for  a  crime 
committed  by  him  constitutes  a  defense  to  an  action  by  his  legal  rep- 
resentative on  a  life  insurance  policy  is  a  question  of  first  impression 
in  this  state.  Where  this  defense  has  been  sustained,  it  is  generally 
upon  the  ground  that  it  is  contrary  to  public  policy  to  permit  a  re- 
covery where  the  death  is  in  consequence  of  a  violation  of  the  law. 

7  For  discussion  of  principles,  see  Vance  on  Insurance.  §§  200,  201.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  pp.  3143-3152. 

8  The  statement  of  facts  is  rewritten. 


DEATH    IN    VIOLATION    OF    LAW  395 

This  is  the  basis  of  the  decision  of  this  case  by  the  Appellate  Court, 
and  is  the  main  reason  urged  here  in  support  of  the  judgment  below. 

It  is  said  by  the  defendant  in  error  that  to  permit  a  recovery  on 
this  policy  would  be  contrary  to  the  public  policy  of  this  state,  as  it 
would  tend  to  remove  a  restraint  thrown  around  persons  who  are 
tempted  to  commit  crimes.  The  argument  rests  upon  the  same 
grounds  that  were  urged  centuries  ago  in  support  of  the  now  obsolete 
doctrine  of  attainder  and  corruption  of  blood.  In  the  earlier  history 
of  the  common  law  various  consequences  other  than  the  punishment 
of  the  offender  followed  conviction  for  felony,  and  in  some  instances 
the  causing  of  a  death  by  mere  misadventure  or  negligence  was  visited 
with  certain  forfeitures  and  penalties.  Without  attempting  historical 
accuracy,  the  law  of  England  provided  that  all  the  property,  real  and 
personal,  of  one  attainted  should  be  forfeited  and  his  blood  so  cor- 
rupted that  nothing  could  pass  by  inheritance  to,  from,  or  through 
him.  He  could  not  sue,  except  to  have  his  attainder  reversed.  Thus 
the  wife,  children,  and  collateral  relations  of  the  attainted  person  suf- 
fered with  him.  As  said  by  Bishop:  "When  the  tree  fell,  it  brought 
down  all  its  branches."  1  Bishop  on  Crim.  Law,  §  968.  As  further 
illustrating  the  rigor  of  the  old  English  law,  it  was  provided  that,  if 
a  man  be  indicted  for  felony  and  flees,  he  forfeits  by  flight  his  goods, 
and  "he  that  committeth  homicide  by  misadventure  shall  forfeit  his 
goods ;  and  so  shall  he  which  doth  kill  a  man  in  his  own  defense  for- 
feit his  goods ;  and  likewise  he  that  killeth  himself  and  is  felo  de  se 
shall  forfeit  his  goods ;  and  he  that  being  indicted  to  felony  shall 
stand  mute  and  not  answer  directly,  or  challenge  peremptorily  above 
twenty  persons,  shall  forfeit  his  goods." 

These  ancient  doctrines,  whether  resting  upon  grounds  of  public 
policy  or  upon  the  other  reason  which  is  sometimes  put  forth,  that  the 
government  is  entitled  to  the  goods  of  the  felon  as  compensation  for 
the  injury  done  and  the  expense  occasioned,  have  failed  to  satisfy  the 
conscience  and  judgment  of  courts  of  later  periods  in  England,  and 
have  never  had  a  potential  existence  in  American  jurisprudence.  The 
Constitution  of  the  United  States,  art.  3,  §  3,  provides  that  "no  attain- 
der of  treason  shall  work  corruption  of  blood  or  forfeiture  except  dur- 
ing the  life  of  the  person  attainted"  and  by  an  act  of  Congress  passed 
in  1790  (Act  April  30,  1790,  c.  9,  1  Stat.  112)  all  corruption  of  blood 
and  forfeitures,  whether  for  treason  or  felony,  as  to  convictions  un- 
der the  federal  law,  were  abolished.  This  doctrine  never  had  any 
existence  in  Illinois,  even  in  the  modified  form  which  seems  to  be  rec- 
ognized in  the  federal  Constitution.  In  all  the  Constitutions  adopted 
in  this  state  a  provision  similar  to  the  one  found  in  section  11  of  ar- 
ticle 2  of  the  Constitution  of  1870  is  to  be  found.  Thus,  the  Consti- 
tution of  1818  provided:  "No  ex  post  facto  law,  nor  any  other  law 
impairing  the  validity  of  contracts,  shall  ever  be  made,  and  no  con- 
viction shall  work  corruption  of  blood  or  forfeiture  of  estate"  (ar- 
ticle 8,  §  16).    The  Constitution  of  1848  (article  13,  §  17)  contained  the 


396  TERMS    OF   THE   LIFE    POLICY 

same  clause,  while  the  Constitution  of  1870  declares:  "All  penalties 
shall  be  proportioned  to  the  nature  of  the  offense,  and  no  conviction 
shall  work  corruption  of  blood  or  forfeiture  of  estate ;  nor  shall  any 
person  be  transported  out  of  the  state  for  any  offense  committed  with- 
in the  same." 

There  are  in  these  several  constitutional  provisions  clear  and  un- 
equivocal declarations  of  the  public  policy  of  this  state,  to  the  effect 
that  no  forfeiture  of  property  rights  shall  follow  conviction  for  crime. 
This  public  policy  is  further  manifested  by  our  statute  in  regard  to 
descent  of  property  in  case  of  intestacy,  and  the  general  power  of 
disposition  of  property  by  will,  conferred  by  our  statute  of  wills. 
In  none  of  these  statutes  is  the  right  conferred  in  respect  to  property 
made  to  depend  on  the  manner  or  cause  of  the  death  of  the  owner. 
To  hold  that  the  property  of  one  who  was  executed  in  this  state  for 
a  crime  was  not  subject  to  the  same  law  of  descent  and  devise  as  prop- 
erty generally  would  be  nothing  less  than  judicial  legislation  by  in- 
grafting exceptions  in  statutes  where  none  exist  by  the  language  of 
the  law.  Statutes  of  descent  and  devise  are  legislative  declarations  of 
the  public  policy  of  the  state  on  the  subjects  to  which  they  relate. 
The  rules  of  the  common  law  on  these  subjects  have  been  wholly 
superseded  by  our  statutes.  Kochersperger  v.  Drake,  167  111.  122,  47 
N.  E.  321,  41  L.  R.  A.  446;  Storrs  v.  St.  Luke's  Hospital,  180  111. 
368,  54  N.  E.  185,  72  Am.  St.  Rep.  211;  Sayles  v.  Christie,  187  111. 
420,  58  N.  E.  480;  In  re  Mulford,  217  111.  242,  75  N.  E.  345,  1  L. 
R.  A.  (N.  S.)  341,  108  Am.  St.  Rep.  249,  3  Ann.  Cas.  986. 

Statutes  of  descent  and  devise  similar  to  ours  have  generally  been 
held  not  to  exclude  an  heir  or  devisee  from  the  benefits  of  these  stat- 
utes on  the  ground  that  the  heir  or  devisee  had  feloniously  and  in- 
tentionally destroyed  the  life  of  the  person  from  whom  the  legacy  or 
inheritance  was  expected.  The  Court  of  Appeals  of  New  York,  in 
Riggs  v.  Palmer,  115  N.  Y.  506,  22  N.  E.  188,  5  L.  R.  A.  340,  12  Am. 
St.  Rep.  819,  by  a  divided  court  decided  against  the  right  of  a  dev- 
isee who  had  murdered  the  testator  to  take  under  the  will ;  but  this 
case  has  not  generally  been  regarded  as  sound  by  the  other  courts. 
In  a  well-considered  case  in  Nebraska  the  Supreme  Court  of  that 
state  retracted  its  first  opinion  in  the  case,  and  upon  a  rehearing  held 
that,  under  a  statute  of  descent  similar  to  ours,  the  fact  that  the  father 
had  feloniously  murdered  his  child  did  not  prevent  the  operation  of 
the  statute  of  descent,  and  that  the  felon  inherited  the  estate  of  his 
victim.  Shellenberger  v.  Ransom,  41  Neb.  641,  59  N.  W.  935,  25  L. 
R.  A.  564.  The  Supreme  Court  of  North  Carolina,  in  Owens  v. 
Owens,  100  N.  C.  240,  6  S.  E.  794,  decided  that  the  fact  that  the  wife 
had  been  convicted  of  being  an  accessory  before  the  fact  for  the 
murder  of  her  husband  furnished  no  legal  reason  for  denying  her  a 
dower  in  her  husband's  real  estate.  Another  case  in  point  is  found  in 
Deem  v.  Alilliken,  6  Ohio  Cir.  Ct.  R.  357.  In  this  case  the  heir  had 
murdered  the  ancestor,  and  it  was  held  that  he  was  entitled  to  in- 


DEATH    IN    VIOLATION    OF    LAW  397 

herit.  The  case  of  Carpenter's  Estate,  170  Pa.  203,  32  Atl.  637,  29 
L.  R.  A.  145,  50  Am.  St.  Rep.  765,  holds  that  one  who  kills  his  an- 
cestor for  an  estate  that  would  naturally  come  to  him  under  the  stat- 
utes of  descent  and  distribution  may  take  it  under  a  Constitution  pro- 
hibiting attainders  working  corruption  of  blood  and  forfeitures  of  es- 
tates and  under  statutes  providing  no  penalty  for  murder  except  by 
hanging. 

We  cite  these  cases,  but  not  for  the  purpose  of  approving  them. 
The  question  decided  in  them  is  not  involved  here.  We  refer  to  these 
cases  merely  to  show  that  the  courts  refused,  in  the  face  of  a  plain 
statutory  declaration  of  the  public  policy  of  the  state,  to  interpolate, 
by  construction,  an  exception  thereto. 

In  Holdom  v.  Ancient  Order  of  United  Workmen,  159  111.  619,  43 
N.  E.  772,  31  L.  R.  A.  67,  50  Am.  St.  Rep.  183,  this  court  held  that 
an  insane  beneficiary  who  murdered  the  assured  could  recover.  The 
<:ases  of  Shellenberger  v.  Ransom  and  Owens  v.  Owens,  supra,  are 
cited  with  approval  by  this  court  upon  the  general  proposition  that  for 
the  courts  to  declare  a  forfeiture  for  crime  where  the  Legislature  has 
remained  silent  is  legislation  by  judicial  tribunals — a  subject  with 
which  they  have  no  concern.  These  cases  are  much  stronger  than  the 
one  at  bar.  There  is  much  more  room  for  holding  that  one  who  has 
been  the  guilty  agent  in  accelerating  a  death  as  a  result  of  which  he 
expects  to  come  into  an  inheritance  or  legacy  or  a  benefit  under  an 
insurance  policy  should  be  denied  the  benefits  of  his  own  wrong  on 
grounds  of  public  policy,  than  there  is  for  denying  innocent  heirs,  dev- 
isees, or  beneficiaries  their  rights  because  the  person  through  whom 
they  claim  was  executed  for  crime.  This  court  held  in  Knights  of 
Honor  v.  Menkhausen,  209  111.  277,  70  N.  E.  567,  that,  while  a  ben- 
eficiary who  has  murdered  the  assured  could  not  recover,  still  the  heirs 
of  the  assured  who  are  within  the  class  of  eligible  beneficiaries  were 
entitled  to  recover,  although  not  named  in  the  certificate  as  benefici- 
aries. 

The  public  policy  of  a  state  is  to  be  sought  for  in  its  Constitution, 
legislative  enactments,  and  judicial  decisions.  When  the  sovereign 
power  of  the  state  has  by  written  Constitution  declared  the  public 
policy  of  the  state  on  a  particular  subject,  the  legislative  and  judicial 
departments  of  the  government  must  accept  such  declaration  as  final. 
When  the  Legislature  has  declared,  by  law,  the  public  policy  of  the 
state,  the  judicial  department  must  remain  silent,  and,  if  a  modifica- 
tion or  change  in  such  policy  is  desired,  the  lawmaking  department 
must  be  applied  to,  and  not  the  judiciary,  whose  function  is  to  declare 
the  law,  but  not  to  make  it.  Limiting  their  actions  to  questions  left 
open  by  the  Constitution  and  the  statutes,  courts  may,  no  doubt,  apply 
the  principles  of  the  common  law  to  the  requirements  of  the  social, 
moral,  and  material  conditions  of  the  people  of  the  state,  and  declare 
what  rule  of  public  policy  seems  best  adapted  to  promote  the  peace, 
good  order,  and  general  welfare  of  the  community.    Hence  arises  the 


398  TERMS    OP   THE   LIFE    POLICY 

rule  that  the  decisions  of  its  courts  are  to  be  investigated  in  determin- 
ing the  public  policy  of  any  government. 

An  insurance  policy  payable  to  the  estate  or  personal  representatives 
of  the  assured  is  a  species  of  property.  It  is  in  the  nature  of  a  chose 
in  action,  which,  sul3Ject  to  certain  conditions,  varying  according  ta 
the  terms  of  the  contract,  is  payable  upon  the  contingency  of  death 
or  at  a  stated  time.  Life  insurance  has  become  an  important  factor 
in  the  commercial  and  social  life  of  our  people.  To  protect  their 
credit,  save  their  estates  from  embarrassment,  and  provide  for  depend- 
ent ones,  the  people  of  this  state  pay  annually  over  $30,000,000  in 
premiums  for  life  insurance.  See  Official  Report  of  Commissioner  of 
Insurance,  part  2,  p.  6.  The  amount  of  insurance  carried  is  approx- 
imately $1,000,000,000.  Why  should  this  enormous  property  interest 
be  subject  to  any  different  conditions  than  those  applying  to  any  other 
property  owned  by  the  people?  If  a  man  who  is  executed  for  crime 
has  at  his  death  $1,000  in  real  estate,  $1,000  in  chattels,  and  $1,000 
life  insurance  payable  to  his  estate,  his  real  estate  descends  to  his  heir, 
and  his  personal  chattels  to  his  administrator,  but  the  $1,000  life  in- 
surance must  be  left  in  the  hands  of  the  company  who  has  received 
the  premiums  because  it  is  said  to  be  contrary  to  public  policy  to  re- 
quire the  company  to  pay,  lest  by  so  doing  it  lend  encouragement  tO' 
other  policy  holders  to  seek  murder,  and  execution  therefor,  in  order 
that  their  estates  or  heirs  might  profit  thereby.  This  is  defendant  in 
error's  position.  This  contention  seems  to  border  closely  on  the  ab- 
surd. We  know  of  no  rule  of  public  policy  in  this  state  that  will  en- 
force this  species  of  forfeiture,  but  there  is  a  rule  of  law  which  has 
often  been  applied  when  two  parties  make  a  valid  contract  and  the 
same  has  been  completely  performed  by  one  party  and  nothing  re- 
mains except  the  performance  by  the  other,  which  will  compel  per- 
formance or  award  damages  for  the  default  against  the  delinquent 
party. 

We  are  aware  that  courts  have  not  always  reached  the  same  con- 
clusion upon  this  question.  So  far  as  we  are  advised,  all  the  cases 
in  which  the  opposite  conclusion  has  been  reached  are  based  upon 
the  English  case.  Amicable  Society  v.  Holland,  4  Bligh  (N.  R.)  194, 
decided  by  the  House  of  Lords  in  1830.  The  facts  in  that  case  as 
stated  by  the  Lord  Chancellor  are:  "In  January,  1815,  Henry  Fauntle- 
roy  insured  his  life  with  the  Amicable  Insurance  Society.  In  the 
month  of  May,  in  the  same  year,  he  committed  a  forgery  on  the  Bank 
of  England.  He  continued  to  pay  the  premiums  upon  his  insurance 
for  a  considerable  period  of  time.  In  the  year  1824  he  was  appre- 
hended, and  on  the  29th  of  October  in  that  year  he  was  declared  a 
bankrupt,  and  an  assignment  of  his  effects  was  made  to  the  respond- 
ent. On  the  following  day,  the  30th  of  October,  he  was  tried  for 
forgery,  found  guilty,  and  sentenced  to  death,  and  in  the  month  of 
November  following  was  executed."  The  court  held  that  there  could 
be  no  recovery.     The  grounds  of  the  decision  were  that  to  allow  a 


DEATH    IN    VIOLATION    OF   LAW  390 

recovery  would  "take  away  one  of  those  restraints  operating  on  the 
minds  of  men  against  the  commission  of  crime." 

It  should  be  borne  in  mind  that  forfeitures  for  the  commission  of 
crime  were  enforced  in  England  at  the  time  of  this  decision,  and  con- 
tinued to  be,  with  more  or  less  severity,  until  abolished  by  33  and  34 
Victoria,  passed  in  1870.  1  Bouvier's  Law  Diet.  p.  446;  Schouler  on 
Wills,  §  33.  The  decision  in  the  Bolland  Case  was  based  on  the 
ground  of  public  policy,  and  no  doubt  was  in  strict  accordance  with 
the  established  policy  of  Great  Britain  at  that  time.  As  a  declaration 
of  the  public  policy  of  the  English  government  at  the  time  the  deci- 
sion was  announced,  it  must  stand  as  conclusive  evidence  of  such  pol- 
icy; but  it  is  no  evidence  whatever  that  the  same  public  policy  pre- 
vails in  any  other  nation  or  government.  Each  nation  or  state  having 
the  power  to  adopt  a  Constitution  and  legislate  for  itself  necessarily 
has  the  inherent  power  to  declare  its  own  rules  of  public  policy.  There 
is  nothing  in  international  law  or  the  comity  between  our  states  that 
requires  our  courts  to  enforce  the  consequences  following  the  convic- 
tion for  felony  in  obedience  to  the  public  policy  of  the  state  where 
the  conviction  is  had,  when  to  do  so  would  be  to  depart  from  our 
own  public  policy  on  the  same  subject.  A  few  citations  will  establish 
this  principle. 

All  the  authorities  agree  that  a  slave,  on  touching  the  land  where 
slavery  is  not  recognized,  becomes  free.  Purdy  v.  New  York,  etc., 
Railroad  Co.,  61  N.  Y.  353;  Bailey  v.  Cromwell,  3  Scam.  71;  Kin- 
ney V.  Cook,  3  Scam.  232 ;  Hone  v.  Ammons,  14  111.  29 ;  Rodney  v. 
Illinois  Central  Railroad  Co.,  19  111.  42.  In  the  case  last  cited  this 
court  said :  "The  state  of  Illinois,  as  one  of  the  independent  sover- 
eignties of  the  Union,  will  determine  the  condition  of  all  persons  with- 
in the  state  according  to  her  own  laws  and  institutions,  and  can  be 
limited  or  controlled  in  this  respect  only  by  the  Constitution  of  the 
United  States  and  the  laws  of  Congress  made  under  authority  of  that 
instrument.  Slavery  in  the  states  where  it  exists  has  its  foundation 
in  the  municipal  regulations  of  such  states,  which  have  no  extrater- 
ritorial operation  and  no  binding  force  in  another  sovereignty." 

When  one  has  been  declared  civilly  dead  under  the  law  of  his  dom- 
icile, such  sentence  will  not  be  regarded  by  other  nations  as  having  any 
extraterritorial  effect.  Wharton  on  Conflict  of  Laws,  §  107.  ''Civil 
death,"  says  Brocher,  "raises  a  feeling  of  repulsion,  whether  the  in- 
capacity is  presented  singly  or  as  a  consequent  of  another  punishment. 
It  is  a  barbarism  condemned  by  justice,  by  reason  and  by  morality. 
The  states  which  have  abolished  it  cannot  be  held  to  accept  it  from 
the  hands  of  a  foreign  Legislature."  Wharton  on  Conflict  of  Laws, 
§  107,  note.  In  regard  to  attainder  for  crime  the  rule  is  the  same. 
Wharton,  in  his  work  on  Conflict  of  Laws,  says  (volume  1,  p.  254): 
"So  far  as  England  is  concerned,  while  her  shores  have  been  the 
refuge  of  multitudes  of  persons  who  have  been  attainted  and  consigned 
to  infamy  by  their  respective  sovereigns,  there  is  no  case  on  record 


400  TERMS    OF  THE  LIFE    POLICY 

where  such  disabilities  have  been  enforced  by  English  courts."  Story, 
in  his  work  on  Conflict  of  Laws,  says  that  "an  American  court  would 
deem  them  [such  incapacities]  purely  local  and  incapable  of  being 
enforced  here."  A  person  who  by  reason  of  his  conviction  for  an 
infamous  offense  cannot  be  a  witness  will  not  be  incapacitated  in  an- 
other jurisdiction  where  the  incapacity  does  not  exist.  Wharton  on 
Crim.  Evidence,  §  363.  The  whole  doctrine  is  condensed  in  one  sen- 
tence by  Wharton,  as  follows :  "There  is  no  such  thing  as  ubiquity  of 
national  disabiHties."     See  Conflict  of  Laws,  §§  7,  8,  101,  104,  113. 

The  question,  therefore,  is  one  to  be  determined  by  our  own  local 
rules  of  public  policy.  In  view  of  these  rules  as  evidenced  by  our 
Constitution  and  the  statutes  above  referred  to,  we  conclude  that  the 
execution  of  the  assured  for  crime  is  no  defense  against  an  action 
upon  a  life  insurance  policy  held  by  the  person  executed,  in  the  ab- 
sence of  a  stipulation  exempting  the  company  from  liability  for  a 
death  from  this  cause. 

In  view  of  the  conclusions  we  have  reached  upon  the  question  al- 
ready discussed,  the  effect  of  the  incontestable  clause  in  this  policy 
becomes  of  no  importance  and  need  not  be  further  alluded  to. 

Regarding  defendant  in  error's  plea  of  res  judicata,  but  little  need 
be  said.  It  will  be  remembered  that  by  that  plea  defendant  in  error 
sets  up  a  proceeding  on  this  policy  in  the  state  of  Pennsylvania,  and 
it  is  to  be  noted  that  the  plea  is  fatally  defective,  in  that  it  contains 
no  averment  of  a  final  judgment.  The  plea  shows  simply  that  a  suit 
was  commenced  on  this  policy;  that  the  company  was  ruled  to  present 
an  affidavit  of  defense;  that  such  affidavit  was  presented  and  it  was 
adjudged  sufficient.  From  this  interlocutory  order  an  appeal  was  tak- 
en to  the  superior  court,  where  the  ruling  of  the  common  pleas  court 
was  sustained.  The  case  was  not  remanded  for  a  trial  and  judgment, 
but  the  plaintiff  was  permitted  to  dismiss  the  case  without  prejudice. 
The  rule  is  without  exception  that  a  plea  of  res  judicata  must  show 
a  final  judgment  entered  by  a  court  of  competent  jurisdiction.  24  Am. 
&  Eng.  Ency.  of  Law  (2d  Ed.)  793,  and  cases  there  cited.  The  de- 
murrer to  this  plea,  as  well  as  to  the  one  setting  up  the  execution  of 
the  assured  for  crime,  should  have  been  sustained. 

The  judgment  of  the  circuit  court  of  Cook  county  and  of  the  Ap- 
pellate Court  for  the  First  District  are  reversed,  and  the  cause  re- 
manded to  the  circuit  court  of  Cook  county,  with  directions  to  sus- 
tain the  demurrer  to  the  pleas,  and  for  further  proceedings  in  con- 
formity with  the  views  herein  expressed.  Reversed  and  remanded, 
with  directions.® 

9  Contra:  Burt  v.  Union  Central  Life  Ins.  Co.,  187  U.  S.  362,  23  Sup.  Ct. 
139,  47  L.  Ed.  216  (1902) ;  Collins  v.  Metropolitan  Life  Ins.  Co.,  27  Pa.  Super. 
Ct.  353  (1905).  Accord:  McCue  v.  Northwestern  Mut.  Life  Ins.  Co..  167  Fed. 
435,  93  C.  C.  A.  71  (1908).  The  decree  in  this  case  was,  however,  reversed  in 
Northwestern  Mutual  Life  Ins.  Co.  v.  McCue,  223  U.  S.  234,  32  Sup.  Ct.  220, 
m  L.   Ed.  (1912). 


INCONTESTABLE   CLAUSE  401 


V.  Incontestable   Clause  ^* 


MASSACHUSETTS  MUT.  BEN.  LIFE  ASS'N  v.  ROBINSON. 

(Supreme  Court  of  Georgia,  1S9S.     104  Ga.  256,  30  S.  E.  918,  42  L.  R.  A.  261.) 

Action  by  Nora  Robinson  against  the  Massachusetts  Mutual  Bene- 
fit Life  Association  on  a  policy  of  insurance  for  $5,000  issued  by  the 
defendant  on  the  life  of  plaintiff's  husband,  John  M.  Robinson.  The 
insured  died  on  June  29,  1894.  The  defendant  pleaded  that  the  in- 
sured had  procured  the  policy  to  be  issued  by  false  and  fraudulent 
statements  in  his  application,  in  that  he  had  stated  therein  that  he  was 
not  in  the  habit  of  using  malt  or  spirituous  liquors,  and  had  never  been 
in  such  habit,  except  as  therein  stated,  whereas  in  truth  and  in  fact 
he  was  an  habitual  drinker  of  intoxicating  liquors,  and  had  suffered 
from  delirium  tremens  within  less  than  three  years  from  the  date  of 
the  policy,  and  that  the  policy  would  not  have  been  issued  to  him,  if 
these  facts  had  been  known  to  the  insurer. 

At  the  trial  there  was  much  evidence  tending  to  establish  the  fact 
that  the  insured  had  been  for  years  in  the  habit  of  getting  on  sprees, 
which  increased  in  number  during  the  latter  years  of  his  life,  and  that 
he  had  been  arrested  on  numerous  occasions  for  public  drunkenness. 
There  was  also  evidence  tending  to  show  that  this  condition  of  affairs 
existed  during  the  three  years  following  the  date  of  the  policy.  His 
habit  as  to  sprees  was  public  and  notorious  in  the  city  of  Atlanta, 
where  he  lived.  He  died  in  the  "city  stockade,"  having  been  sent 
there  for  public  drunkenness.  His  death  was  caused  by  his  being 
placed  at  hard  labor  on  a  very  hot  day,  immediately  following  the 
excessive  use  of  alcoholic  stimulants.  The  plaintiff  recovered  a  ver- 
dict for  the  full  amount  of  the  policy.  A  motion  for  a  new  trial  was 
filed  by  the  defendant,  in  which  error  was  assigned  upon  various  rul- 
ings made  during  the  trial.  The  motion  was  overruled,  and  the  de- 
fendant brings  error. 

Cobb,  J.^^  *  *  *  In  dealing  with  this  case,  the  first  matter  to 
be  considered  arises  out  of  questions  made  by  the  record  in  reference 
to  what  is  commonly  known  as  the  "incontestable  clause"  in  a  policy 
of  life  insurance.  This  clause  in  the  present  case  is  In  the  following 
words :  "This  policy  is  incontestable  after  three  years  from  its  date, 
provided  three  full  yearly  premiums  have  been  paid  upon  it,  except 
that  error  in  the  age  of  the  Insured  is  open  to  adjustment,  and,  if 

10  For  discussion  of  principles,  see  Vance  on  Insurance,  §  205.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  3,  pp.  2755-2758. 

11  Part  of  ttie  opinion  is  omitteU  and  the  statement  of  facts  Is  reivritten. 

CooLET  Ins. — 26 


402  TERMS    OF  THE  LIFE    POLICY 

understated,  the  insured  will  be  entitled  only  to  the  amount  of  insur- 
ance which  the  sum  paid  would  have  purchased  at  his  correct  age,  if 
insurable  in  this  association."  The  policy  contains  the  contract  en- 
tered into  between  the  insurer  and  insured.  The  stipulations  con- 
tained therein,  as  well  as  those  set  forth  in  other  papers  made  a  part 
of  the  contract  by  reference  in  the  policy,  must  be  looked  to  in  order 
to  ascertain  upon  what  terms  the  parties  agreed,  and  what  are  the 
rights  and  liabilities  of  each.  Such  a  contract,  from  its  very  nature, 
requires  that  each  party  should  act  in  perfect  good  faith  with  the 
other.  The  applicant  for  insurance  must  fully  and  freely  disclose  to 
the  insurer  all  facts  which  would  in  any  way  throw  light  on  the  ques- 
tion then  under  consideration  by  the  insurer ;  that  is,  whether  it  would 
be  proper  to  enter  into  a  stipulation  with  the  applicant  to  insure  his 
life.  On  the  other  hand,  the  insurer  is  under  a  like  obligation  to 
act  in  good  faith  with  the  applicant  in  regard  to  all  matters  where 
there  is  a  duty  resting  upon  him.  That  this  duty  rests  respectively 
upon  the  applicant  and  the  insurer  in  reference  to  all  contracts  of 
life  insurance  is  well  settled,  and  is  fully  recognized  by  the  Code  of 
this  state.     *     *     * 

The  contract  entered  into  between  the  insurer  and  the  insured  in 
the  "incontestable  clause"  is,  in  effect,  that  the  insurer  says,  on  his 
part,  "Pay  me  your  premiums  according  to  the  terms  of  the  contract, 
and  I  will  pay  at  your  death,  to  the  beneficiaries  named  in  the  policy, 
the  amount  thereof,  without  regard  to  the  statements  which  you  made 
in  your  application, — whether  they  be  true,  or  whether  they  be  false." 
Under  such  a  contract  the  policy  may  be  either  absolutely  incontesta- 
ble, or  it  may  be  incontestable  as  to  all  matters  of  defense  except  such 
as  are  reserved  in  the  policy.  Such  a  policy  may  be  incontestable  from 
the  very  moment  it  is  issued,  or  it  may  be  incontestable  after  the 
lapse  of  a  certain  time  after  its  issue.  Such  being  the  classes  of  in- 
contestable policies,  the  question  now  arises,  how  far  can  such  con- 
tracts be  sustained  by  the  law? 

Where  the  incontestable  clause  provides  that  the  policy  shall  not  be 
defended  on  any  ground  except  such  as  would  amount  to  a  fraud  in 
the  procurement  of  the  policy,  such  a  stipulation  will  be  binding  upon 
the  parties,  even  though  it  was  to  take  effect  from  the  moment  the 
policy  was  to  be  issued.  Such  was  the  view  of  the  court  of  exchequer 
in  the  case  of  Wood  v.  Dwarris,  25  Law  J.  Exch.  (N.  S.)  129-131, 
where  it  was  held  that  when  an  insurer  holds  out  to  the  public  that 
its  policies  shall  be  "indisputable"  except  in  case  of  fraud,  and  the 
policy  is  effected  upon  the  faith  of  that  representation,  the  insurer  is 
barred  in  equity  from  saying  that  the  application  for  the  policy  stip- 
ulated that,  if  it  contained  any  untrue  statement,  the  policy  should  be 
void,  and  that  it  did  contain  such  a  statement.  In  the  trial  of  this 
case  Baron  Martin  remarked,  "You  have  no  right  to  set  up  such  a 
defense  as  this,  after  having  stated  that  you  will  not  dispute  except  in 
cases  of  fraud." 


INCONTESTABLE   CLAUSE  403 

A  policy  providing  generally  that  it  should  be  incontestable  from 
its  date,  but  silent  on  the  subject  of  defending  upon  grounds  originat- 
ing in  fraud,  would  still  be  a  valid  contract.  The  waiver  of  the  right 
to  defend  on  the  ground  of  fraud  not  being  the  subject  of  express 
stipulation,  the  law  would  imply  that  the  insurer  intended  to  reserve 
to  himself  the  right  to  defend  upon  that  ground.  If,  however,  the 
policy  stipulated  that  it  should  be  incontestable  from  its  date,  and  the 
insurer  should  not  be  allowed  any  defenses,  whether  originating  in 
fraud  or  otherwise,  or  if  it  were  clear  from  the  terms  of  the  con- 
tract that  it  was  the  intention  of  the  parties  that  fraud  should  not 
be  a  defense,  then  such  a  contract  would  be  void,  as  being  opposed 
to  the  policy  of  the  law.  Bliss,  Ins.  (2d  Ed.)  §§  254,  255.  But  what 
is  the  legal  effect  of  a  contract  of  life  insurance  where  it  is  stipulated 
.  that  it  shall  become  incontestable  after  the  lapse  of  a  specified  period 
from  the  date  of  its  issue,  and  that  this  incontestability  shall  apply  to 
all  defenses, — whether  originating  in  the  fraud  of  the  applicant  or 
not  ?  Such  is  the  character  of  the  stipulation  in  the  present  case,  with 
the  exception  as  to  age,  set  out  in  the  clause  quoted  supra.  While  it 
is  true  that  fraud  voids  all  contracts,  it  is  equally  true  that  it  is  com- 
petent for  the  lawmaking  power  to  fix  a  definite  time  in  which  an  ac- 
tion shall  be  brought  to  declare  a  fraudulent  contract  void,  and  a  fail- 
ure on  the  part  of  the  person  defrauded  to  bring  such  action  within 
the  time  designated  would  have  the  effect  of  debarring  him  from  the 
right  to  set  aside  such  a  contract.  While  in  such  cases  it  is  generally 
provided  that  the  limitations  so  fixed  shall  not  begin  to  operate  in 
favor  of  the  party  who  has  committed  the  fraud  until  the  same  has 
been  discovered,  the  duty  is  placed  upon  the  party  who  seeks  to  avoid 
the  contract  on  the  ground  of  fraud  to  make  such  efforts  to  discover 
the  fraud  as  would  amount  to  ordinary  diligence  in  law.  Civ.  Code, 
§§  3669,  3711-3785;  Little  v.  Reynolds,  101  Ga.  594,  28  S.  E.  919, 
and  cases  cited. 

As  the  law  may  prescribe  such  a  limitation  in  which  actions  shall 
be  brought  by  the  party  to  be  affected,  it  is  also  within  the  power  of 
the  contracting  parties  to  agree  among  themselves  upon  a  period  of 
time  which  would  amount  to  a  statute  of  limitations,  either  greater 
or  less  than  the  period  fixed  by  the  law.  Telegraph  Co.  v.  James, 
90  Ga.  254,  16  S.  E.  83 ;  Brown  v.  Insurance  Co.,  24  Ga.  97 ;  Alelson 
V.  Insurance  Co.,  and  Maril  v.  Same,  97  Ga.  723,  25  S.  E.  189;  Ritch 
V.  Association,  99  Ga.  112,  25  S.  E.  191.  The  period  fixed  by  law  be- 
ing intended  for  the  benefit  of  the  parties  interested  in  the  contract, 
and  for  their  protection,  it  is  competent  for  them  to  stipulate  that  the 
time  which  the  law  gives  them  to  act  shall  be  shortened,  on  the  one 
hand,  or  lengthened,  on  the  other.  Parties  interested  in  the  contract 
may  waive  the  benefit  of  the  statute  of  limitations  fixed  by  the  law, 
the  effect  of  the  waiver  being  either  to  make  a  longer  or  shorter  period 
than  the  law  prescribes.  What  is  said  above  would  seem,  however, 
to  be  subject  to  the  qualification  that  where  the  effect  of  the  contract 


404  TERMS    OF  THE   LIFE    POLICY 

would  be  to  vitalize,  by  the  lapse  of  time  fixed  in  the  contract,  an  un- 
dertaking which  would  otherwise  be  void  for  fraud,  the  time  fixed  in 
which  the  party  would  have  a  right  to  rescind  the  contract  on  account 
of  the  fraud  must  be  such  a  time  as  by  the  exercise  of  ordinary  dili- 
gence the  same  could  have  been  discovered.  If  the  period  so  fixed 
is  sufficient  for  the  person,  by  the  exercise  of  that  care  and  diligence 
which  an  ordinarily  prudent  person  would  give  to  his  own  business, 
to  ascertain  whether  a  fraud  has  been  perpetrated  upon  him,  then  the 
contract  would  be  valid,  and  would  be  enforceable  after  the  period 
had  elapsed  in  which  discovery  of  fraud,  if  any  existed,  was  to  be 
sought ;  and,  even  if  actual  fraud  had  been  perpetrated,  the  party  who 
was  the  victim  of  such  fraud  would  be  debarred  of  this  defense. 

Where  parties  enter  into  a  contract  which  from  its  nature  affords 
an  opportunity  to  one  party  to  perpetrate  a  fraud  upon  another,  and 
it  is  stipulated  therein  that  the  party  who  is  liable  to  be  defrauded 
shall  have  a  specified  time  in  which  to  make  inquiry  as  to  the  acts 
and  conduct  of  the  other  party,  he  is  on  notice,  by  the  very  terms  of 
the  contract  itself,  that  fraud  may  be  involved  in  it,  and  the  duty  is 
upon  him  to  commence  at  once  an  investigation  into  the  acts,  conduct, 
and  representations  of  the  other  party;  and  if  the  time  fixed  is  such 
that  the  information  which  would  show  that  the  fraud  had  been  per- 
petrated could  have  been,  by  the  exercise  of  ordinary  diligence,  ob- 
tained, then  the  parties  are  bound  by  their  contract  as  to  time,  and 
after  the  lapse  of  that  time  fraud  is  no  longer  a  defense.  This  does 
not  violate  in  any  way  the  well-settled  principle  that  fraud  is  to  be 
abhorred,  vitiates  everything  it  touches,  and  the  person  guilty  of  it 
is  not  to  be  countenanced  in  any  way  by  the  courts.  While  all  this 
is  true,  it  is  equally  well  settled  that  a  contract  which  has  for  its 
foundation  a  willful  fraud  may  become  vitalized  and  enforceable  by 
the  negligence  of  the  party  who  was  the  victim  of  the  fraud.     *     *     * 

As  the  terms  of  the  incontestable  clause  in  the  present  case  were 
broad  enough  to  exclude  the  defense  of  fraud,  and  as  the  time  fixed 
in  which  the  fraud  must  be  discovered,  if  any  had  been  perpetrated, 
was  three  years,  and  as  this  is,  beyond  question,  a  reasonable  time, 
we  feel  no  hesitancy  in  holding  that  the  contract  was  valid,  and  that 
there  was  therefore  no  error  in  the  ruling  of  the  court  below  that  the 
insurer  could  not  set  up  as  a  defense  to  a  suit  on  the  policy  any  ground 
growing  out  of  misrepresentation  or  concealment,  although  amount- 
ing to  a  fraud,  after  the  policy  had  been  in  force  three  years,  and 
three  full  yearly  payments  had  been  made  thereon ;  there  being  no 
question  of  misrepresentation  as  to  age.  The  present  case  is  one 
peculiarly  appropriate  for  an  application  of  these  principles.  The  very 
matter  now  set  up  to  defeat  the  policy  (that  is,  habits  of  drunkenness 
of  the  insured)  was  so  public  and  notorious  in  the  city  in  which  he 
lived  that  it  is  manifest  from  the  record  that  a  letter  addressed  to  any 
prominent  business  man  or  any  city  official  at  any  time  between  the 
date  of  the  first  application  for  insurance  to  the  date  of  the  death  of 


INCONTESTABLE    CLAUSE  405 

the  insured  would  have  disclosed  practically  the  state  of  affairs  now 
shown  to  have  existed. 

There  being  no  evidence  before  the  trial  court  as  to  what  the  law 
of  Massachusetts  is  as  to  contracts  like  the  one  in  question,  it  will 
be  presumed  that  the  common  law  is  of  force  there  on  the  subject. 
Railroad  Co.  v.  Lacy,  43  Ga.  461 ;  Pattillo  v.  Alexander,  96  Ga.  60, 
22  S.  E.  646,  29  L.  R.  A.  616.  There  being  nothing  in  the  common 
law  which  would  invalidate  the  contract,  and  it  being  consistent  with 
the  law  of  Georgia  to  give  it  effect,  it  will  be  enforced  in  the  courts 
of  this  state. 

It  was  contended  that,  even  conceding  the  incontestable  clause  to  be 
valid,  still,  under  the  terms  of  the  policy  in  the  present  case,  the  in- 
surer was  not  debarred  from  taking  advantage  of  other  defenses  which 
it  is  claimed  were  embraced  in  the  policy.  The  policy  stipulated  that 
"death  of  the  insured  in  consequence  of  the  use  of  intoxicating  liq- 
uors or  narcotics,  or  by  his  own  hand  or  act,  whether  sane  or  insane, 
whether  the  act  be  voluntary  or  involuntary,  is  a  risk  not  contem- 
plated or  covered  by  this  contract,  and  against  which  this  association 
does  not  insure,"  and  that  if  "the  insured  shall  fall  into  the  habit  of 
becoming  intoxicated,  or  into  the  habitual  use  of  narcotics,  or  shall 
have  delirium  tremens,  within  three  years  from  the  date  hereof,  then 
this  contract  shall  be  void ;  and  in  such  event  the  insured  hereby  au- 
thorizes and  directs  the  association  to  cancel  this  contract,  and  return 
to  him  the  sum  of  all  payments  made  thereon,  which  sum  he  agrees 
to  accept,  for  himself,  his  heirs  or  assigns,  in  full  and  complete  settle- 
ment of  all  liability  of  said  association  under  this  contract."  The 
contract  as  contained  in  the  policy  must  be  construed  as  a  whole,  so 
that,  if  possible,  each  stipulation  shall  be  made  consistent  with  the 
others,  and  the  whole  allowed  to  stand.     *     *     * 

Construing  the  above-quoted  clauses  of  the  policy  in  connection  with 
the  incontestable  clause,  it  would  seem  a  proper  interpretation  of  the 
three  clauses,  as  a  whole,  that  these  things  which  were  declared  to  be 
acts  which  would  vitiate  the  policy  were  such  as  occurred  within  three 
years  from  its  date,  and  that  they  should  be  valid  and  sufficient  rea- 
sons for  rescinding  the  contract  and  canceling  the  policy  at  any  time 
within  the  period  provided  for.  This  would  be  a  fair  interpretation 
of  the  contract,  and  would  appear,  from  the  terms  of  the  paper,  to  be 
the  intention  of  the  parties  to  it.  But  even  if  this  were  not  true,  and 
if  the  presence  of  the  other  two  clauses  raises  a  doubt  as  to  whether 
they  are  consistent  with  the  incontestable  clause,  as  it  is  to  be  pre- 
sumed that  the  incontestable  clause  was  placed  in  the  policy  for  the 
benefit  of  the  insured  the  doubt  as  to  the  intention  of  the  parties  must 
be  resolved  by  giving  it  a  construction  which  would  make  that  clause 
the  controlling  one.  It  seems  to  us  that  interpreting  the  policy  fairly 
and  reasonably,  according  to  its  terms,  it  was  the  intention  of  the  par- 
ties that  all  grounds  of  defense  which  by  the  exercise  of  ordinary  care 


406  TERMS    OF  THE   LIFE    POLICY 

.could  have  been  discovered  within  three  years,  are  intended  to  be  cut 
off  by  the  incontestable  clause. 

We  think  this  view  is  abundantly  sustained  by  the  authority  above 
cited,  and  also  supported  by  reason.  There  can  be  no  doubt  that  the 
interpretation  which  is  placed  upon  every  policy  of  the  character  of 
the  one  under  consideration,  by  the  holder,  is  that  after  the  lapse  of 
the  period  fixed  the  policy  is  to  be  free  from  defenses.  It  can  be  as- 
serted with  equal  confidence  that  the  fact  that  the  holder  in  each  case 
so  understands  is  weh  known  to  the  insurer.  The  incorporation  into 
the  policy  of  subsequent  clauses  which  produce  doubt,  and  make  the 
policy  difficult  of  interpretation,  will  not  have  the  effect  of  relieving 
the  insurer  of  the  burden  that  is  placed  upon  him  by  the  rule  which 
requires  that  the  clauses  in  the  policy  ''should  receive  the  construction 
the  insurer  had  reason  to  suppose  was  put  upon  them  by  the  insured." 

Wadsworth   v.   Tradesmen's   Co.,    132    N.   Y.    540,   29    N.   E.    1104. 

*     *     * 

In  Goodwin  v.  Society,  97  Iowa,  226,  66  N.  W.  157,  32  L.  R.  A. 
473,  59  Am.  St.  Rep.  411,  the  application  for  insurance  stated  that 
the  death  of  the  insured  by  his  own  hand  was  a  risk  not  assumed  by 
the  association,  and  the  policy  declared  that  a  claim  thereunder  by 
death  occurring  two  or  more  years  after  its  date  would  be  incontesta- 
ble, except  for  fraud  in  procuring  it.  The  court  held  that  the  society 
was  liable  in  case  of  death  by  suicide  occurring  two  or  more  years 
from  the  date  of  the  policy.  Deemer,  J.,  in  referring  to  the  conflict- 
ing provisions  of  the  policy,  said  that:  "We  have  a  case,  then,  for 
construction  of  these  seemingly  ambiguous  and  conflicting  provisions. 
The  tenets  established  for  the  guidance  of  courts  in  such  matters  are 
well  understood,  and  no  one  is  better  established  than  that  in  all  cases 
the  policy  must  be  liberally  construed  in  favor  of  the  assured,  so  as  not 
to  defeat,  without  a  plain  necessity,  his  claim  for  indemnity.  And 
when  the  words  used  may,  without  violence,  be  given  two  interpreta- 
tions, that  which  will  sustain  the  claim  and  cover  the  loss  should  be 
adopted." 

In  Association  v.  Payne  (Tex.  Civ.  App.)  32  S.  W.  1063,  where  the 
court  had  under  consideration  a  contract  of  insurance  where  one 
clause  in  a  policy  provided  that,  if  a  certificate  should  be  in  force  five 
years,  it  should  thereafter  "be  incontestable  for  any  cause  except  for 
nonpayment  of  dues,"  and  it  was  also  provided  in  another  clause  that 
if  the  insured  died  by  his  own  hand,  whether  voluntary  or  involun- 
tary, sane  or  insane,  the  association  would  not  be  liable,  it  was  held 
that  the  suicide  of  the  insured  after  the  policy  had  been  in  force  five 
years  would  not  relieve  the  company  from  liability.  It  has,  however, 
been  held  that  the  incontestable  clause  does  not  have  the  effect  of  do- 
ing away  with  clauses  in  the  policy  merely  regulating  the  remedy  to 
be  pursued  by  the  person  entitled  to  sue  thereon,  and  that,  if  the  pol- 
icy stipulated  that  actions  should  be  brought  thereon  within  six  months 


INCONTESTABLE    CLAUSE 


407 


from  the  death  of  the  insured,  there  was  no  such  inconsistency  be- 
tween this  and  the  incontestable  clause  as  would  render  the  clause  in 
regard  to  the  time  in  which  the  suit  should  be  brought  inoperative. 
Brady  v.  Insurance  Co.,  168  Pa.  645,  32  Atl.  102. 

It  would  seem  therefore  to  be  the  rule  that,  in  regard  to  every  mat- 
ter which  would  have  the  effect  of  defeating  or  destroying  the  con- 
tract, the  incontestable  clause  would  be  controlling,  and  stipulations  in 
the  policy  to  the  contrary  must  yield,  and  that  provisions  in  regard  to 
remedies  and  conditions  to  be  performed  before  suit  is  brought,  and 
like  conditions  merely  affecting  the  remedy  to  be  pursued  upon  a  valid 
contract,  would  not  be  affected  by  the  clause  as  to  incontestability. 
*     *     *     Affirmed. ^^ 

12  Compare  Wright  v.  Benefit  Life  Ass'n,  118  N.  Y.  237,  23  N.  E.  186,  6  L. 
R.  A.  731,  16  Am.  St.  Rep.  749  (1890);  Welch  v.  Union  Central  Life  Ins.  Co., 
108  Iowa,  224.  78  N.  W.  853,  50  L.  R.  A.  774  (1899);  Union  Central  Life  Ins. 
Co.  V.  Fox,  106  Tenn.  347,  61  S.  W.  62,  82  Am.  St.  Rep.  885  (1901). 


408  MARINE  INSURANCE 


MARINE  INSURANCE 

I.  Implied  Exceptions  * 

1.  Seaworthiness.' 


DODGE  V.  BOSTON  MARINE  INS.  CO. 

(Supreme  Judicial  Court  of  Maine.  1S92.     85  Me.  215,  27  Atl.  105.) 

Action  by  T.  Dodge  against  the  Boston  Marine  Insurance  Company, 
on  a  policy  of  marine  insurance.     Heard  on  report. 

Haskell,  J.  Assumpsit  upon  a  policy  of  marine  insurance,  cover- 
ing the  freight  of  schooner  Lyra  on  a  voyage  from  Bangor  to  Boston. 

We  have  said  in  Hutchins  v.  Ford,  82  Me.  370,  19  Atl.  833 :  "There 
was  an  implied  warranty  on  the  part  of  the  owners  that  the  brig  was 
seaworthy  at  the  inception  of  the  voyage ;  that  is,  tight,  staunch, 
strong,  properly  manned  and  provisioned,  and  suitably  equipped  for 
the  voyage.  This  implied  warranty  was  a  condition  precedent  to  any 
liability  of  the  insurer,  aUhough  the  burden  was  upon  the  defendant 
to  establish  its  breach,  since  seaworthiness  of  the  brig  at  the  incep- 
tion of  the  risk  is  presumed.  The  presumption  of  seaworthiness  at 
the  inception  of  a  risk  under  a  marine  policy  may  be  rebutted,  either 
by  direct  evidence  of  the  ship's  actual  condition,  or  by  proof  of  facts 
from  which  unseaworthiness  may  fairly  be  inferred ;  and  when  the 
latter  is  shown  the  insurance  is  destroyed,  for  the  policy  does  not  at- 
tach, and  the  premium  would  be  without  consideration,  and  may  be 
recovered  back.  Taylor  v.  Lowell,  3  Mass.  347  [3  Am.  Dec.  141]  ; 
Paddock  v.  Insurance  Co.,  11  Pick.  [Mass.]  227;  Swift  v.  Insurance 
Co.,  122  Mass.  573."     These  doctrines  are  applicable  to  this  case. 

The  Lyra,  loaded  with  lumber,  was  towed  down  river,  and  lay  at 
anchor  over  night.  In  the  morning  she  made  sail,  and  when  barely 
in  the  bay  sprang  a  leak  without  any  apparent  cause,  there  being  no 
"stress  of  weather."  Having  a  fair  wind,  she  made  Belfast  water- 
logged and  unseaworthy.  A  survey  was  called,  her  cargo  discharged 
and  reshipped,  and  she  was  condemned,  stripped,  and  torn  up  as  use- 
less. She  was  fifty  years  old,  had  met  with  disaster  two  months  previ- 
ous, was  weak,  and  substantially  worn  out. 

The  evidence  rebuts  the  presumption  of  seaworthiness,  and  clearly 

1  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  214-217. 

2  For  discussion  of  principles,  see  Cooley,  Briefs  on  the  Law  of  Insur- 
ance, vol.  2,  pp.  1253,  1553;    vol.  3,  p.  2bd'o. 


IMPLIED    EXCEPTIONS  409 

shows  that  the  vessel  must  have  been  unseaworthy  at  the  inception 
of  the  voyage.    The  insurance,  therefore,  never  attached.    The  premi- 
um, however,  may  be  recovered  back  under  the  money  count. 
Judgment  for  plaintiff  for  the  premium  only. 


2.  Deviation  ^ 


HEARN  V.  NEW  ENGLAND  MUT.  MARINE  INS.  CO. 

(Circuit  Court  of   United    States.   District  of   Massachusetts,    1870.     3   Cliff. 

318.    Fed.    Cas.    No.   6.301.) 

Assumpsit  by  George  Hearn  against  the  New  England  ^Mutual  Ma- 
rine Insurance  Company  on  a  policy  of  marine  insurance. 

Before  Clifford,  Circuit  Justice,  and  Lowell,  District  Judge. 

Clifford,  Circuit  Justice.*  Policies  of  insurance  against  marine 
risks  are  liberally  construed,  as  they  are  regarded  as  commercial  in- 
struments in  the  strictest  sense.  Such  instruments,  where  their  terms 
are  ambiguous,  may  be  explained  by  parol  evidence  of  the  usages  of 
trade ;  but  where  the  terms  employed  are  clear  and  precise  in  them- 
selves, the  principles  which  govern  their  construction  do  not  vary  from 
those  which  are  applicable  to  other  mercantile  instruments,  and  no 
evidence  of  any  usage  or  custom  can  be  admitted  to  explain,  alter, 
or  impair  the  terms  of  the  contract  as  made  by  the  parties.  Oelricks 
V.  Ford,  23  How.  [64  U.  S.]  63,  16  L.  Ed.  534;  Bliven  v.  Screw  Co., 
23  How.  431,  16  L.  Ed.  510;   1  Arn.  Ins.  (2d  Am.  Ed.)  64. 

Insurance  was  effected  in  this  case  at  Boston  on  the  9th  of 
May,  1866,  in  the  sum  of  five  thousand  dollars  "on  charter  of  the 
barque  Maria  Henry,  at  and  from  Liverpool  to  port  in  Cuba,  and  at 
and  thence  to  port  of  advice  and  discharge  in  Europe."  When  the 
application  for  the  policy  was  made,  the  barque  was  at  Liverpool, 
and  it  appears  that  she  loaded  at  that  port  with  a  cargo  of  coal, 
and,  having  been  regularly  cleared  from  that  port,  proceeded  thence 
without  difficulty  on  her  outward  voyage  to  the  port  of  St.  Jago  de 
Cuba,  where  she  discharged  her  outward  cargo,  and  that,  having  dis- 
charged her  outward  cargo,  she  sailed  thence  to  Mansanilla,  another 
port  in  Cuba,  and  there  took  on  board  a  cargo  of  the  products  of 
the  island,  and  on  the  13th  of  September  sailed  thence  for  Europe 
via  Falmouth  for  orders,  and  on  the  18th  of  the  same  month  was 
totally  lost  on  her  homeward  voyage  by  perils  of  the  sea.     Due  notice 

8  For  discussion  of  principles,  see  Cooley,  Briefs  on  the  Law  of  Insurance, 
vol.  2,  pp.  1567-1591. 

4  Part  of  the  opinion  is  omitted  and  the  statement  of  facts  is  rewritten. 


410  MARINE   INSURANCE 

of  the  loss  was  given  to  the  defendants,  and  the  loss  is  admitted 
as  alleged,  but  the  defendants  refused  to  pay  the  amount  insured,  or 
any  part  of  the  same,  upon  the  ground  that  the  barque,  without  any 
justifying  cause,  departed  from  the  prescribed  course  of  the  voyage 
as  described  in  the  policy  on  which  the  action  is  founded. 

Reference  was  made  in  that  proposition  to  the  fact  that  the  vessel, 
after  she  went  to  St.  Jago  de  Cuba  and  there  discharged  her  out- 
ward cargo,  proceeded  thence  to  Mansanilla  for  a  return  cargo  before 
she  sailed  for  Europe ;  but  the  plaintiff  contended  that  going  to  a 
second  port  in  Cuba  did  not  constitute  a  deviation,  as  it  is  the  usage 
for  vessels  bound  from  Liverpool  and  back,  to  discharge  at  one  port 
and  then  to  proceed  to  a  second  port  for  a  return  cargo.  Nothing 
of  the  kind  is  expressed  in  the  policy  of  insurance,  if  the  words  are 
to  be  taken  in  their  ordinary  signification ;  but  the  theory  of  the 
plaintiff  is  that  such  is  the  usage  of  the  trade,  and  he  insisted  that 
parol  evidence  of  such  usage  was  admissible,  and  that  the  language 
of  the  policy  should,  in  view  of  that  evidence,  be  construed  as  con- 
ferring that  right.  Deviation  in  marine  insurance  is  understood  to 
mean  a  voluntary  departure  without  necessity  or  reasonable  cause 
from  the  regular  and  usual  course  of  the  specified  voyage  insured, 
which  in  this  case  was  to  port  in  Cuba,  and  at  and  thence  to  port 
of  advice  and  discharge,  as  plainly  and  explicitly  expressed  in  the 
policy.  Whenever  a  deviation  of  that  kind  takes  place,  the  voyage 
is  determined  and  the  underwriters  are  discharged  from  any  responsi- 
bility.    Park,  Ins.  294;    Elliot  v.  Wilson,  4  Brown,  Pari.  Cas.  470. 

Different  language  is  sometimes  employed,  as  where  the  voyage  is 
described  as  one  from  the  port  of  departure  to  Cuba  or  to  the  island 
of  Cuba,  but  the  terms  of  the  policy  in  the  case  before  the  court 
are  "at  and  from  Liverpool  to  port  in  Cuba,  and  at  and  thence  to 
port  of  advice  and  discharge,"  showing  a  contract  complete  in  itself, 
and  one  expressed  in  plain,  clear,  and  unambiguous  language,  em- 
ploying no  terms  of  art  nor  any  word  or  phrase  of  doubtful  meaning. 
L^nambiguous  as  the  language  is,  the  court  cannot  impute  to  the 
parties  any  other  intention  than  that  which  they  have  expressed,  as 
the  court  must  do,  to  hold  that  port  means  ports,  or  port  or  ports,  or 
to  a  port  of  discharge,  and  also  to  a  second  port  for  a  return  cargo 
and  at  and  thence  "to  port  of  advice  and  discharge."  Precisely  the 
same  question  was  presented  in  the  case  of  Brown  v.  Tayleur,  4 
Adol.  &  E.  241,  and  the  court  held  that  the  word  "port"  in  such  a 
policy  could  not  be  construed  to  mean  "ports,"  nor  "port  or  ports," 
and  that  the  going  to  a  second  port  in  such  a  case  constituted  a  de- 
viation, the  judges  giving  their  opinions  seriatim,  and  all  concurring 
in  the  conclusion.  Sea  Ins.  Co.  v.  Gavin,  4  Bligh  (N.  S.)  578,  2  Dow 
&  C.  125. 

Evidence  of  usage,  such  as  the  plaintiff  assumes  in  argument  that 
he  has  offered  in  this  case,  if  admissible  for  any  legitimate  purpose, 
must  be  expected  to  have  the  effect,  and,  if  fully  believed,  ought  to 


IMPLIED    EXCEPTIONS  411 

have  the  effect,  to  induce  the  court  to  decide  that  a  policy  of  insur- 
ance covering  a  voyage  to  a  single  port  in  Cuba  may  be  construed, 
and  if  the  evidence  of  such  usage  is  full  to  the  point,  must  be  con- 
strued, to  cover  not  only  that  voyage,  but  also  a  voyage  to  a  second 
port  for  a  return  cargo,  even  though  it  be  necessary  in  order  to 
accomplish  the  purpose,  to  make  a  coasting  voyage  to  the  opposite 
side  of  that  large  and  highly  commercial  island.  Suppose,  for  ex- 
ample, the  master  in  this  case  had  gone  to  Matanzas,  on  the  north 
side  of  the  island,  as  his  port  of  discharge,  he  might,  under  the 
theory  of  the  plaintiff,  have  afterwards  gone  to  Trinidad  for  a  return 
cargo,  which  is  on  the  southern  side  of  the  island.  Every  policy  of 
insurance,  if  properly  drawn,  describes  the  place  ,of  the  ship's  de- 
parture, and  also  the  place  of  destination,  and  the  reason  why  a  de- 
viation discharges  the  underwriter  is,  that  if  the  voyage  is  changed 
after  the  ship  sails,  the  voyage  becomes  a  different  one,  and  not 
that  against  which  the  insurer  has  undertaken  to  indemnify.  But 
in  the  case  supposed,  the  insurer  would  be  held  responsible  for  a 
voyage  from  Matanzas  to  Trinidad,  though  no  such  voyage  is  men- 
tioned in  the  policy. 

Custom  or  usage  is  sometimes  supposed  to  be  admissible  to  show 
that  the  parties  to  a  written  instrument  had  something  in  their  con- 
templation more  than  is  expressed  in  what  they  have  reduced  to 
writing ;  but  Lord  Denman  well  said,  in  the  case  of  Trueman  v.  Loder, 
11  Adol.  &  E.  589,  that  the  cases  go  no  further  than  to  permit  the 
explanation  of  words  used  in  a  sense  different  from  their  ordinary 
meaning,  or  the  addition  of  known  terms  not  inconsistent  with  the 
written  contract.  Extrinsic  evidence  of  custom  and  usage  is  doubt- 
less admissible  in  certain  cases,  where  the  transaction  is  of  a  com- 
mercial character,  to  annex  incidents  to  written  contracts  in  respect 
to  which  the  contracts  are  silent,  but  such  evidence  cannot  be  properly 
received  if  it  is  inconsistent  with  the  terms  of  the  written  instru- 
ment, whether  such  inconsistency  appears  by  the  express  terms  of 
the  written  contract  or  by  reasonable  implication  from  the  same  as 
applied  to  the  subject-matter.  Hutton  v.  Warren,  1  Mees.  &  W.  475; 
1  Smith,  Lead.  Cas.  387.  Apply  that  rule,  and  it  is  clear  that  evi- 
dence of  usage,  if  offered  to  show  that  the  barque  might  go  to  one 
port  to  discharge  and  to  a  second  for  a  return  cargo,  ought  not  to 
be  admitted,  as  it  is  plainly  inconsistent  with  the  written  contract, 
which  is  to  port  and  at  and  thence  to  the  return  port.     *     *     * 

Certain  cases  are  cited  by  the  plaintiff,  which,  it  is  suggested,  sup- 
port the  opposite  theory,  but  when  carefully  examined  it  wnll  be 
found  that  they  do  not  have  any  such  tendency.  Warre  v.  Miller, 
4  Barn.  &  C.  538 ;  Cruickshank  v.  Janson,  2  Taunt.  301 ;  Dickey  v. 
Ins.  Co.,  7  Cranch  [11  U.  S.]  327,  3  L.  Ed.  360.  At  and  from 
Grenada  to  London  was  the  description  of  the  voyage  in  the  first 
case,  and  at  and  from  Jamaica  in  the  second,  and  at  and  from  Trinidad 
in  the  case  decided  in  the  supreme  court.    Evidence  was  introduced  in 


412  MARINE  INSURANCE 

the  first  case  showing  that  there  was  but  one  custom-house  for  the 
whole  island  of  Grenada,  and  inasmuch  as  the  voyage  insured  was  at 
and  from  Grenada  and  not  at  and  from  a  port  in  Grenada,  the  court 
decided  that  the  island  must  be  considered  as  all  one  place,  and  that 
there  was  no  deviation,  although  the  vessel  went  to  three  places  to 
discharge.  Nothing  different  is  asserted  in  the  second  case,  and  in 
the  third  the  court  decided  that  where  the  voyage  as  described  in 
the  policy  is  "at  and  from  an  island,"  the  vessel  may  sail  from  port 
to  port  to  take  in  cargo,  but  the  decision  has  no  application  to  the 
case  at  bar,  as  the  voyage  described  in  this  case  is  to  port  in  Cuba 
and  at  and  thence  to  port  of  advice,  which  shows  that  the  two  cases 
are  in  no  respect  analogous. 

Underwriters  are  presumed  to  be  acquainted  with  the  course  of  the 
trade  they  insure  and  with  its  peculiarities,  and  the  court  decided,  in 
the  case  of  Noble  v.  Kennoway,  2  Doug.  510,  that  in  that  trade, 
which  was  the  Labrador  trade,  greater  delay  in  landing  the  cargo 
was  customary  than  would  be  justifiable  in  most  other  adventures, 
but  it  is  not  perceived  that  the  case  has  much  bearing  upon  the 
question  under  consideration.  Vallance  v.  Dewar,  1  Camp.  503.  Un- 
doubtedly, evidence  of  usage  was  also  admitted  to  explain  the  terms 
of  the  contract  in  the  case  of  Salvador  v.  Hopkins,  3  Burrows,  1707, 
as  suggested  by  the  plaintiff,  but  the  motion  for  new  trial  was  over- 
ruled and  the  decision  of  the  court  placed  expressly  upon  the  ground 
that  the  evidence  offered  and  admitted  was  not  repugnant  to  the 
contract.  Other  cases  of  an  analogous  character  are  also  referred 
to,  where  evidence  of  usage  was  admitted  to  explain  some  ambiguous 
phrase  in  the  terms  of  the  contract  to  which  the  same  answer  may  be 
given,  that  the  evidence  admitted  did  not  contradict  what  was  in 
writing.  Uhde  v.  Walters,  3  Camp.  16;  Hyde  v.  Willis,  Id.  202. 
Such  evidence  was  also  admitted  in  the  case  of  Gracie  v.  Marine  Ins. 
Co.,  8  Cranch  [12  U.  S.]  75,  3  L.  Ed.  492,  to  show  the  boundaries 
and  extent  of  a  commercial  port  named  in  the  policy  as  the  port 
of  destination,  and  it  is  quite  clear  that  the  ruling  was  correct,  as 
the  evidence  tended  to  explain  and  not  to  contradict  the  terms  of  the 
policy,  and  a  like  ruling  is  found  in  the  case  of  Lowry  v.  Russell, 
8  Pick.  (Mass.)  362,  where  the  court  overruled  the  objection  to  the 
evidence  expressly  upon  the  ground  that  it  did  not  contradict  the 
terms  of  the  bill  of  lading. 

Reliance  is  also  placed  upon  the  case  of  Bulkley  v.  Protection  Ins. 
Co.,  Fed.  Cas.  No.  2,118;  but  the  case  was  decided  w'holly  irre- 
spective of  any  such  question,  as  the  evidence  introduced  failed  to 
show  that  there  was  any  such  usage  as  the  plaintiff  supposed.  The 
.policy  in  that  case  described  the  voyage  as  from  Ocrocoke  to  St. 
Bartholomew  or  St.  Thomas,  and  at  and  from  thence  to  Tobasco,  and 
the  court,  and  rightly,  held  that  it  did  not  authorize  the  assured  to 
go  to  both  ports,  that  he  might  go  to  either  at  his  election,  and 
that,  having  first  stopped  at  the  island  of  St.  Bartholomew  and  after- 


PERILS   OF   THE    SEA  413 

wards  proceeded  to  St.  Thomas,  it  was  a  deviation.  "That  the  policy 
only  covers  a  voyage  to  one  or  the  other  of  those  islands,"  said  the 
judge,  "cannot  admit  of  a  doubt,"  and  if  the  sentence  stopped  there 
the  case  would  be  consistent  with  the  recent  decision  of  the  supreme 
court,  and  all  the  other  modern  decisions  upon  the  subject,  but  he 
adds,  in  continuation  of  the  same  sentence,  "unless  justified  by  usage," 
leaving  it  to  be  inferred  that  his  opinion  was  that  the  evidence  of 
usage  would  be  admissible  to  incorporate  a  different  meaning  into  the 
contract.  But  he  could  hardly  have  intended  what  the  words  imply, 
as  in  the  next  sentence  he  says  that  "it  was  at  the  election  of  the 
assured  to  go  to  either,  to  the  one  or  the  other,  but  the  language 
of  the  policy  is  too  plain  and  explicit  to  admit  of  a  construction  that 
it  authorized  a  voyage  to  both,"  in  which  latter  view  w^e  entirely 
■concur.     *     *     *  e 


II.  Perils  of  the  Sea  « 


PERRY  v.   COBB. 

(Supreme  Judicial  Court  of  Maine,  1896.     S8  Me.  435,  34  Atl.  278,  49  L.  R. 

A.  389.) 

Bill  in  equity  by  J.  C.  Perry  and  others  against  W.  T.  Cobb  and 
others  on  a  contract  of  marine  insurance.     Heard  on  report. 

Haski-XL,  J."  *  *  *  Xhe  plaintiffs  contracted  with  the  associa- 
tion for  insurance  to  the  amount  of  $2,548  on  a  cargo  of  lime  on 
board  ship,  under  deck,  at  Rockland  for  New  York.  There  were  no 
conditions  in  the  contract,  except  that  5  per  cent,  particular  average 
on  the  whole  value  of  the  cargo  was  exempted  from  insurance.  The 
vessel  was  36  days  at  sea, — an  unusually  long  time  for  the  voyage, 
occasioned  by  rough  weather,  head  winds,  and  successive  gales.  She 
sailed  the  14th  of  February,  and  arrived  the  21st  of  ]\Iarch.  She 
labored  heavily,  and  strained  somewhat,  but  arrived  tight,  and  with 
no  special  damage  in  the  hull,  save  the  loss  of  a  skylight,  some  sails, 
and  a  compass  box.  On  the  27th  of  March,  she  was  given  a  berth, 
and  broke  cargo.  Some  7S  barrels  of  lime  were  discharged.  About 
the  14th  of  April  she  was  moved,  and  began  the  further  discharge  of 

5  A  bill  in  equity  to  reform  the  policy  in  this  case  was  dismissed  in  Hearn 
T.  New  England  Mut.  Mar.  Ins.  Co.,  Fed.  Cas.  No.  6,302  (1872).  Similar  ac- 
tions by  the  same  plaintiff  against  another  company  (llearn  v.  Equitable 
Safety  Ins.  Co.)  are  to  be  found  in  Fed.  Cas.  No.  6,299  (1870),  and  Fed.  Cas. 
No.  6,300  (1872). 

6  For  discussion  of  principles,  see  Vance  on  Insurance,  §  218.  See,  also, 
Cooley.  Briefs  on  the  Law  of  Insurance,  vol.  3,  pp.  2882,  2892. 

^  Part  of  the  opinion  is  omitted. 


414  MARINE  INSURANCE 

cargo  that  was  all  out  on  the  28th.  A  few  of  the  casks  may  have 
been  stove,  a  few  more  showed  signs  of  fire,  and  a  few  were  bursting 
from  swollen  contents.  The  balance  of  the  cargo  was  in  bad  con- 
dition, in  that  staves  had  shrunken  and  hoops  loosened,  allowing  the 
lime  to  sift  out  and  fall  through  the  tiers  of  barrels  to  the  deck  or 
floor  of  the  hold.  No  sea  water  reached  the  cargo,  unless  in  a  few 
instances  when  a  hatch  had  been  taken  ofif,  or  when  the  cabin  was' 
flooded  once.  The  damage  from  sea  water  must  have  been  very 
slight,  and  did  not  affect  the  cargo,  beyond  the  few  barrels  that 
it  touched. 

The  insurance  was  against  perils  of  the  sea  for  a  particular  voyage. 
A  voyage  policy  does  not  attach  unless  the  vessel  be  seaworthy  at 
the  inception  of  the  voyage,  which  is  presumed,  but  may  be  re- 
butted. Dodge  V.  Insurance  Co.,  85  Me.  215,  27  Atl.  105;  Hutchins 
V.  Ford,  82  Me.  370,  19  Atl.  832.  It  is  so  whether  the  insurance 
be  upon  the  ship,  or  upon  the  cargo,  or  upon  freight.  Van  Wickle 
V.  Insurance  Co.,  97  N.  Y.  350;  Higgie  v.  American  Lloyds  (D.  C.) 
11  Biss.  395,  14  Fed.  143;  Higgie  v.  National  Lloyds,  Id.;  Daniels 
V.  Harris,  L.  R.  10  C.  P.  1.  "She  must  not  be  overloaded,  and  the 
cargo  must  not  be  badly  stowed."     Arn.  649. 

In  this  cause  the  insurance  was  "at  and  from  Rockland  to  New 
York," — meaning  until  safely  landed  in  New  York,  or  for  a  reason- 
able time  to  land  there  under  the  usages  of  that  port.  The  sea  risk 
continued  until  the  goods  might  be  put  on  shore  by  reasonable  dis- 
patch. On  the  sixth  day  after  arrival  the  vessel  was  given  a  berth  at 
the  wharf,  and  the  hatches  were  opened.  No  damage  to  the  cargo 
is  claimed  after  that  time,  and  no  point  is  made  that  the  insurance 
ended  before.  During  the  voyage  the  decks  had  been  awash,  and 
the  cabin  once  flooded.  Some  sea  water  found  its  way  to  the  cargo, 
and  may  have  caused  the  bursting  of  a  few  casks,  and  the  scorching 
of  a  few  more ;  but  this  damage  was  far  below  the  particular  aver- 
age— or,  in  this  instance,  partial  loss — that  had  been  excepted  from 
the  insurance.  So  that  the  remaining  loss  or  damage  was  from  the 
shrinking  of  the  staves  of  the  barrels,  and  slacking  up  of  the  cooper- 
age, allowing  their  contents  to  sift  out  and  fall  through  the  tiers  of 
barrels  to  the  deck  or  floor  of  the  hold,  and  leaving  the  barrels  so 
tender  that  they  could  not  easily  be  hoisted  out  of  the  hatch  with- 
out danger  of  falling  to  pieces.  This  condition  is  claimed  to  have 
resulted  from  the  rolling  and  pitching  of  the  vessel,  caused  by  the 
storms  and  bad  weather  of  an  unusually  protracted  voyage;  and  the 
question  is,  was  it  caused  by  a  peril  of  the  sea? 

Tempests  and  rough  weather  are  common  incidents  in  sea  transit. 
How  long  a  voyage  may  continue  is  beyond  the  power  of  prophecy 
to  foretell  at  the  inception  of  it.  Fair  winds  may.  serve,  or  head 
winds  may  drive  the  vessel  off  her  course.  The  voyage  policy  con- 
tinues until  the  port  of  discharge  shall  have  been  reached,  and,  if 
upon  goods,  until  they  may  have  been  safely  landed.     If  the  goods 


PERILS   OF   THE    SEA  415 

be  of  a  perishable  nature,  and  decay  from  a  protracted  voyage  before 
they  can  be  landed,  the  loss  would  not  be  from  a  peril  of  the  sea. 
If  the  cargo  be  shaken  and  stove  from  the  inherent  weakness  of 
the  packages,  unsuited  to  withstand  the  roughness  of  sea  transit,  or 
caused  by  the  effect  of  their  contents  during  the  voyage,  it  would  not 
be  from  a  sea  peril,  but  from  natural  causes  produced  either  by  the 
fault  of  the  shipper,  or  by  the  inherent  nature  of  the  goods.  The 
condition  of  the  cargo  when  landed  does  not  raise  the  inference  that 
its  injury  resulted  from  a  sea  peril,  but  the  burden  rests  upon  the 
plaintiff  to  prove  the  fact. 

No  case  has  been  cited  at  the  bar  that  brings  this  loss  within  the 
hazard  underwritten.  Insurance  Co.  v.  Boon,  95  U.  S.  117,  24  L.  Ed. 
395,  is  a  suit  upon  a  fire  policy  on  goods  ashore.  So  is  Insurance 
Co.  v.  Tweed,  7  Wall.  44,  19  L.  Ed.  65.  So  is  Railway  Co.  v. 
Kellogg,  94  U.  S.  469,  24  L.  Ed.  256.  Montoya  v.  Assurance  Co., 
6  Exch.  451,  is  upon  a  marine  policy  on  tobacco  shipped  with  hides. 
Sea  water  caused  the  hides  to  putrefy  and  injure  the  tobacco,  and 
it  was  held  a  sea  peril ;  but  the  damage  by  sea  water  in  the  cause 
at  bar  did  no  mischief  to  the  bulk  of  the  cargo,  and  none  resulted 
from  the  small  part  injured.  In  Cory  v.  Insurance  Co.,  107  ^lass. 
140,  9  Am.  Rep.  14,  it  is  held  that  underwriters  "do  not  assume  the 
risk  of  ordinary  perils  incident  to  the  course  of  the  voyage,  nor  of 
damage  arising  from  intrinsic  qualities  or  defects  of  the  thing  in- 
sured," nor  of  "ordinary  dampness  of  the  hold,  though  aggravated 
by  the  length  of  the  voyage  and  the  variety  of  climate  through  which 
the  vessel  has  passed  in  consequence  of  perils  of  the  sea,"  because 
the  result  is  attributable  to  the  goods  themselves,  and  not  to  sea 
perils,  as  the  proximate  cause.  In  Xeidlinger  v.  Insurance  Co.  (C. 
C.)  11  Fed.  514,  the  policy  was  upon  barley,  with  a  clause  excepting 
damage  from  must  or  mold,  unless  from  actual  contact  with  sea 
water,  and  the  hazard  was  limited  to  that  part  of  the  barley  actually 
wetted.  Taylor  v.  Dunbar,  L.  R.  4  C.  P.  206,  holds  that  the  decay 
of  meat  during  a  voyage  protracted  by  tempestuous  weather  is  not 
within  the  terms  of  a  marine  policy.  In  Boyd  v.  Dubois,  3  Camp. 
133,  Lord  Ellenborough  said:  "If  the  hemp  was  put  on  board  in 
a  state  liable  to  effervesce,  and  did  effervesce  and  generate  the  fire 
which  consumed  it,  upon  the  common  principles  of  insurance  law  the 
assured  cannot  recover  for  a  loss  which  he  himself  has  occasioned." 
Crofts  v.  Marshall,  7  Car.  &  P.  646,  is  an  insurance  of  36  casks  of 
oil,  and,  the  cargo  not  having  shifted,  a  part  of  them  were  found 
empty,  and  others  had  lost  a  part  of  their  contents.  The  jury  dis- 
agreed as  to  whether  the  leakage  was  from  perils  of  the  sea,  and 
the  court  gave  judgment  for  defendant  by  consent.  These  are  all  the 
cases  cited  by  the  plaintiffs. 

The  general  rule  is  that  everything  which  happens  through  the 
inherent  vice  of  the  thing,  or  by  the  act  of  the  owners,  master,  or  mer- 
chant shipper,  shall  not  be  reputed  a  peril,  if  not  otherwise  borne  on 


416  MARINE   INSURANCE 

the  policy.  Emerig.  Ins.  290;  Insurance  Co.  v.  Adler,  65  Md.  162, 
4  Atl.  121,  57  Am.  Rep.  314;  Baldwin  v.  Railway  Co.,  L.  R.  9 
O.  B.  582;  Baker  v.  Insurance  Co.,  12  Gray  (Mass.)  603;  Cory 
V.  Insurance  Co.,  107  Mass.  140,  9  Am.  Rep.  14;  Boyd  v.  Dubois, 
3  Camp.  133.  If  the  inherent  vice  be  stimulated  by  a  protracted 
voyage,  it  is  still  no  loss  from  a  peril  of  the  sea.  Cory  v.  Insur- 
ance Co.,  supra;  Taylor  v.  Dunbar,  L,.  R.  4  C.  P.  206.  So  it  is 
if  the  loss  be  from  some  other  intervening  cause,  as  where  slaves 
die  from  starvation,  from  the  failure  of  provisions  during  an  un- 
usually long  voyage,  occasioned  by  bad  weather.  Tatham  v.  Hodgson, 
6  Term  R.  307. 

Lord  Ellenborough,  in  Cullen  v.  Butler,  5  Maule  &  S.  461,  dis- 
tinguishes between  perils  on  the  seas  and  perils  of  the  seas.  Lord 
Herschell  says  the  latter  phrase  "does  not  cover  every  accident  or 
casualty  which  may  happen  to  the  subject-matter  of  the  insurance  on 
the  sea.  It  must  be  a  peril  of  the  sea.  *  *  *  There  must  be 
some  casualty — something  that  could  not  be  foreseen  as  one  of  the  nec- 
essary incidents  of  the  adventure.  The  purpose  of  the  policy  is  to 
secure  an  indemnity  against  accidents  which  may  happen,  not  against 
accidents  which  must  happen."     The  Xantho,  12  App.  Cas.  503. 

It  is  not  always  easy  to  mark  the  line  between  the  ordinary  opera- 
tion of  the  elements  and  their  perilous  action.  The  latter  must  be 
the  proximate  cause  of  the  loss.  Lord  Bacon's  reason  is :  "It  were 
infinite  for  the  law  to  consider  the  causes  of  causes,  and  their  impul- 
sions one  on  another.  Therefore  it  contenteth  itself  with  the  im- 
mediate cause."     Gow,  Ins.  §§  92,  137. 

In  applying  this  rule  to  the  cause  at  bar,  the  only  direct  damage 
to  the  cargo  clearly  shown  is  that  resulting  from  the  contact  with  sea 
water,  amounting  to  less  than  the  particular  average  excepted.  The 
remaining  damage  to  the  cargo  is  not  shown  to  have  resulted  but 
from  the  unexpectedly  long  voyage,  that  may  have  excited  the  inherent 
qualities  of  the  goods,  causing  the  packages  to  shrink  and  scatter 
their  contents  so  as  to  need  cooperage  before  they  could  be  safely 
raised  through  the  hatch.  All  authorities  agree  that  a  protracted  voy- 
age is  not  a  sea  peril,  within  a  marine  policy,  because  it  is  not  an 
unusual  event,  but  one  of  the  natural  incidents  to  sea  transit.  In- 
surance is  not  on  the  voyage,  but  for  the  voyage.  Pole  v.  Fitzgerald. 
Willes,  644. 

If  damage  to  the  cargo  resulted  from  its  inherent  vice  that  worked 
the  mischief  under  natural  conditions,  it  was  not  a  sea  peril.  Had 
the  voyage  been  performed  in  a  week,  such  results  would  not  have 
been  expected.  The  evidence  is  conflicting  as  to  the  proximate  cause 
for  the  condition  of  the  cargo  upon  its  arrival.  The  associates,  to 
whom  it  was  agreed  to  submit  the  question  of  liability,  are  men  of 
large  experience  in  burning  and  shipping  lime.  They  are  all  fair 
men,  and  appear  to  have  heard  the  controversy  with  patience;  and. 
after  full  investigation,  all  but  the  plaintiff  agreed  that  he  had  no 


PERILS   OF   THE    SEA  417 

claim,  and  so  decided.  Their  decision  must  have  great  weight  upon 
the  fact  as  to  whether  the  condition  of  the  cargo,  upon  its  arrival  in 
New  York,  was  other  than  what  might  have  been  expected  from  ordi- 
nary sea  weather  at  that  time  of  year,  February  and  March,  during  a 
voyage  of  36  days,  without  any  unusual  sea  peril.  The  cargo  arrived 
all  in  position.  It  had  not  shifted  or  been  knocked  to  pieces  by  the 
vessel  having  been  thrown  on  her  beam  ends,  or  wrecked  or  stranded. 
But  it  may  be  said  that  the  damage,  within  the  particular  average 
clause,  gave  the  cargo  a  bad  reputation,  and  thereby  lessened  its 
market  value.  This  result  might  be,  and  yet  not  be  within  the  terms 
of  the  policy.  Bennecke,  Ins.  438.  No  case  is  cited  that  holds  such 
doctrine.  On  the  contrary,  Cator  v.  Insurance  Co.,  L.  R.  8  C.  P. 
552,  holds  the  reverse.  That  was  insurance  upon  packages  of  tea. 
Some  were  damaged,  and  others  were  not ;  but  the  damage  was  re- 
stricted to  the  former,  although  there  was  a  clause  in  the  policy 
excepting  damage  other  than  by  contact  with  sea  water.  The  court 
held  the  rule  would  be  the  same  without  the  clause,  for  insurance 
covers  actual  damage,  and  not  suspicion  of  damage.  Montoya  v. 
Insurance  Co.,  6  Exch.  451,  supra,  comes  the  nearest  to  an  authority 
for  the  contention,  but  there  the  tobacco  was  actually  injured  from 
the  fumes  of  the  putrefying  hides.  So  in  Lawrence  v.  Aberdein,  5 
Barn.  &  Adol.  107,  approved  in  Gabay  v.  Lloyd,  3  Barn.  &  C.  793. 
*     *     *     Dismissed. 


MILLER  V.  CALIFORNIA  INS.  CO. 

(Supreme  Coiu-t  of  California,  1888.     76  Cal.  145,  18  Pac.  155,  9  Am.  St. 

Rep.  184.) 

Action  on  a  policy  of  insurance,  brought  by  M.  J.  Miller  against 
the  California  Insurance  Company,  for  the  loss  of  the  steamer  Pilot. 
A  general  demurrer  was  entered  and  sustained,  and  judgment  rendered 
for  defendant,  from  which  plaintiff  appealed. 

Paterson,  J.  1.  This  is  an  action  brought  on  a  policy  of  marine 
insurance  issued  by  the  respondent  on  the  steamer  Pilot.  The  risks 
insured  against  were  as  follows :  "Touching  the  adventures  and  perils 
which  this  insurance  company  is  content  to  bear  and  take  upon  itself 
in  this  policy,  they  are  of  seas,  fires,  pirates,  assailing  thieves,  jettison, 
barratry  of  the  master  or  mariners,  (unless  the  assured  be  owner  or 
part  owner  of  the  vessel,)  embezzlement  and  illicit  trade  excepted  in 
all  cases,  and  all  other  losses  and  misfortunes  that  shall  come  to  the 
hurt,  damage,  or  detriment  of  the  said  vessel,  or  any  part  thereof, 
to  which  insurers  are  liable  by  the  rules  and  customs  of  insurance 
in  San  Francisco,  excepting  such  losses  and  misfortunes  as  are  ex- 
cluded by  this  policy.  *  *  *  It  is  also  agreed  that  in  case  of 
insurance  on  a  steamer  this  company  is  not  liable  for  any  injury, 
CooLET  Ins. — 27 


418  MARINE  INSURANCE 

derangement,  or  breakage  of  the  machinery  or  bursting  of  the  boilers 
unless  occasioned  by  stranding." 

The  complaint  alleges  that  on  May  25,  1883,  "the  boiler  on  said 
vessel  exploded,  and  said  vessel  became  then  and  there  unmanage- 
able, and  swung  around  on  the  water,  and  within  a  few  minutes  there- 
after sank  and  became  a  total  wreck,  and  was  wholly  and  totally 
lost  to  the  owner  thereof,  and  was  abandoned  by  the  owner  to  de- 
fendant. There  is  no  allegation  in  the  complaint  that  under  the 
customs  of  insurance  in  San  Francisco  insurers  are  liable  for  ex- 
plosions of  boilers,  or  damages  resulting  therefrom.  A  demurrer  to 
the  complaint  was  filed  on  the  ground  that  it  does  not  state  facts 
sufficient  to  constitute  a  cause  of  action.  The  demurrer  was  sus- 
tained, and,  plaintiff  declining  to  amend,  judgment  was  entered  for 
defendant. 

Passing  over  the  question  as  to  the  sufficiency  of  the  allegation  in 
the  complaint  to  show  that  the  destruction  of  the  vessel  was  caused 
by  the  bursting  of  the  boiler,  or  by  any  other  means  admitted  to 
be  such  as  would  make  the  company  liable,  and  conceding  that  the 
complaint  shows  the  loss  to  have  occurred  by  reason  of  the  bursting 
of  the  boiler  without  any  fault  of  the  plaintiff,  these  inquiries  re- 
main :  First,  is  the  explosion  of  the  boiler  a  peril  of  the  sea  within 
the  first  clause  above  quoted?  and,  second,  if  it  be  a  peril  of  the 
sea,  are  not  the  damages  resulting  therefrom  excepted  under  the 
special  provision  of  the  policy  which  is  quoted  above,  and  which  relates 
to  the  bursting  of  the  boilers? 

Perils  of  the  sea  are  defined  by  our  Civil  Code  to  be  "storms  and 
waves;  rocks,  shoals,  and  rapids;  other  obstacles,  though  of  human 
origin  ;  changes  of  climate ;  the  confinement  necessary  at  sea ;  animals 
peculiar  to  the  sea;  and  all  other  dangers  peculiar  to  the  sea."  Civil 
Code,  §  ^199.  The  bursting  of  a  boiler  is  not  within  any  of  the  first 
six  causes  named.  Is  it  a  danger  peculiar  to  the  sea?  Perils  of 
the  sea  have  been  defined  to  be  "all  perils,  losses,  and  misfortunes 
of  a  marine  character,  or  of  a  character  incident  to  a  ship  as  such." 
T.  &  M.  I.  Co.  V.  H.  F.  &  Co.,  House  of  Lords,  July  14,  1887.  In 
that  case  it  was  said :  "The  damage  to  the  donkey-engine  was  not 
through  its  being  in  a  ship  at  sea.  The  same  thing  would  have 
happened  had  the  boiler  and  engines  been  on  land,  if  the  same  mis- 
management had  taken  place.  The  sea,  waves,  and  wind  had  nothing 
to  do  with  it.  *  *  *  It  is,  I  think,  impossible  to  say  that  this 
is  damage  occasioned  by  a  cause  similar  to  perils  of  the  sea  on  any 
interpretation  which  has  ever  been  applied  to  that  term.  It  will  be 
observed  that  Lord  EHenborough  limits  the  operation  of  the  clause 
to  marine  damage.  By  this  I  do  not  understand  him  to  mean  only 
damage  which  has  been  caused  by  the  sea,  but  damage  of  a  char- 
acter to  which  a  marine  adventure  is  subject.  Such  an  adventure 
has  its  own  perils,  to  which  either  it  is  exclusively  subject,  or  which 


PERILS    OF   THE    SEA  419 

possess,  in  relation  to  it,  a  special  or  peculiar  character.  To  secure 
an  indemnity  against  these  is  the  purpose  and  object  of  a  policy  of 
marine  insurance.  *  *  *  But  the  explosion  of  the  boiler  on  board 
the  Panama  had  no  marine  character  at  all.  It  might  have  happened 
in  precisely  the  same  way,  and  done  the  same  kind  of  damage,  if  a 
similar  engine  had  been  in  use  for  the  purpose  of  moving  manufactur- 
ing machinery  on  shore."  These  views  seem  to  express  very  clearly 
the  proper  meaning  of  the  seventh  clause  of  section  2199,  supra. 

In  support  of  the  contention  that  an  explosion  of  the  boiler  is  a 
peril  embraced  within  the  list  of  perils  insured  against  by  this  policy, 
appellant  cites  Administrators  of  Perrin  v.  Insurance  Co.,  11  Ohio, 
169,  38  Am.  Dec.  728,  and  Insurance  Co.  v.  Glasgow,  9  Mo.  413. 
In  the  Ohio  case  the  risks  insured  against  were  described  in  the 
policy  as  follows:  "Of  the  seas,  rivers,  fires,  enemies,  pirates  of  the 
rivers,  assailing  thieves,  and  all  other  losses  and  misfortunes  which 
shall  come  to  the  damage  of  said  steam-boat  according  to  the  true 
intent  and  meaning  of  said  policy."  It  was  there  held  that  the  loss 
occasioned  by  the  bursting  of  a  boiler  was  a  loss  within  the  policy, 
but  we  do  not  understand  the  court  to  have  held  in  that  case  that 
such  a  loss  was  a  loss  by  peril  of  the  seas.  In  Telegraph  Co.  v.  In- 
surance Co.,  6  Q.  B.  Div.  57,  the  Ohio  case  was  quoted  approvingly, 
yet  it  was  there  held  that  the  bursting  of  a  boiler  was  a  peril  not 
within  the  general  term  "perils  of  the  sea."  In  Insurance  Co.  v.  Glas- 
gow, supra,  it  seems  that  the  policy  was  the  same  as  in  the  Ohio  case. 

In  all  the  cases  cited  it  was  held  simply  that  the  loss  was  one 
which  came  within  the  insurance  clause  providing  against  "all  other 
perils,  losses,"  etc.  In  the  case  before  us  the  general  clause  is, 
"and  all  other  losses  and  misfortunes  that  shall  come  to  the  hurt, 
damage,  or  detriment  of  the  said  vessel,  or  any  part  thereof,  to  which 
insurers  are  liable  by  the  rules  and  customs  of  insurance  in  San 
Francisco,  excepting  such  losses  and  misfortunes  as  are  excluded  by 
this  policy."  Our  conclusion  is  that  the  loss  complained  of  herein 
is  not  within  either  the  meaning  of  the  term  "perils  of  the  sea"  as 
defined  in  our  Civil  Code,  or  as  understood  in  the  law  of  marine  in- 
surance generally ;  and,  of  course,  if  the  loss  be  one  which  falls 
under  the  general  clause  of  the  policy,  it  is  sufficient  to  say  that 
there  is  no  allegation  that  by  the  customs  of  insurance  in  San  Fran- 
cisco insurers  are  liable  for  explosions  of  boilers,  or  damages  resulting 
therefrom. 

2.  The  construction  we  place  upon  the  clause  of  the  policy  above 
quoted  renders  it  unnecessary  to  consider  whether  the  damages  are 
not  in  any  event  excepted  under  that  provision  of  the  policy  relating 
to  the  bursting  of  boilers.  It  is  proper  to  say,  however,  that  a  clause 
precisely  the  same  in  language  was  considered  by  the  court  of  appeals 
in  Strong  v.  Insurance  Co.,  31  N.  Y.  103,  88  Am.  Dec.  242.  It 
was  there  held  that  the  language  is  to  be  understood  to  mean  that 


420  MARINE   INSURANCE 

the  company  is  not  to  be  liable  for  damage  resulting  to  the  vessel  or 
otherwise  on  account  of  the  bursting  of  the  boilers,  unless  occasioned 
by  stranding.     Judgment  affirmed. 


III.  Particular  and  General  Average  Losses  • 
1.  In  General, 


COSTER  V.  PHCENIX  INS.  CO. 

(Circuit   Court  of  United   States,   District  of  Pennsylvania,  1807.     2   Wash. 

C.  C.  51,  Fed.  Cas.  No.  3,264.) 

This  was  a  case  agreed,  which  stated,  that  in  1805,  an  order  for 
insurance  of  goods  on  board  the  shi]T  Draper,  at  and  from  New  York 
to  Amsterdam,  was  given  by  the  plaintiff's  agent  to  the  defendants ; 
in  which  it  was  stated  the  same  were  to  be  free  of  average  under 
ten  per  cent.  On  the  26th  of  December,  1805,  a  policy  was  subscribed 
by  the  defendants  on  goods  on  board  the  same  ship,  at  and  from 
New  York  to  Anisterdam,  at  five  per  cent. ;  which  insurance  was 
declared  to  be  made  on  one  hundred  and  twenty-five  bales  of  cotton, 
and  thirty-six  boxes  of  sugar,  valued  at  12,150  dollars,  and  war- 
ranted free  from  average  under  ten  per  cent.,  and  with  other  war- 
ranties not  in  question.  That  the  following  (printed)  clause  was  also 
contained  in  the  policy,  viz.  "Memoranda.  It  is  agreed  that  salt, 
wheat,  Indian  corn,  peas,  or  any  other  kind  of  grain,  malt,  dried 
fish  stowed  in  bulk,  leaf  tobacco  or  otherwise,  fruit  of  all  kinds,  and 
any  other  articles  that  are  perishable  in  their  own  nature,  are  war- 
ranted by  the  assured  free  from  average,  unless  general ;  all  other 
goods  free  from  average  under  five  per  cent.,  unless  general."  The 
vessel  sailed  from  New  York,  and  arrived  in  the  Texel,  where  she 
was  subjected  to  certain  extraordinary  expenses  and  damages,  of  the 
nature  of  general  average. 

The  question  submitted  to  the  court  was,  whether  the  defendants  are 
liable  and  chargeable  with  the  said  average  loss,  being  general,  but 
under  ten  per  cent.  If  the  court  should  be  of  opinion  that  the  de- 
fendants are  liable  for  the  said  general  average,  judgment  to  be  ren- 
dered for  the  plaintiff ;  the  amount  to  be  agreed  upon  by  the  parties. 
If  the  opinion  should  be  that  they  are  not  so  liable,  judgment  to  be 
rendered  for  the  defendants. 

sFor  discussion  of  principles,  see  Vance  on  Insurance,  §§  228.  224.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  pp.  2968,  2995. 


PARTICULAR    AND   GENERAL    AVERAGE    LOSSES  421 

Washingtox,  Circuit  Justice.  The  word  "average"  originally  meant 
a  contribution,  by  the  owner  of  the  ship,  cargo,  and  freight,  towards 
a  loss  sustained  for  the  general  benefit  of  all.  But  when  understood 
in  this  sense,  it  is  at  this  day  always  called  "general,"  to  distinguish 
it  from  "particular"  average,  which  means  nothing  more  than  a  par- 
tial loss.  So  that  from  the  time  that  the  term  "average"  was  used 
to  express  a  partial  loss,  the  word  "average"  has,  in  the  common 
understanding  of  commercial  men,  so  far  varied  its  original  meaning, 
when  applied  to  original  insurances,  as  to  import  as  well  a  general 
contribution,  as  a  particular  loss ;  and  is  intended  to  be  used  in  either 
of  those  ways:  the  adjuncts  "general,"  "partial,"  or  "particular,"  are 
always  affixed. 

An  attention  to  the  true  meaning  of  this  phrase  will  assist  us  in 
understanding  the  point  in  controversy.  The  printed  clause  liberates 
the  underwriters  from  particular  average  to  any  amount,  on  articles 
of  a  perishable  nature,  and  on  other  articles  where  the  loss  amounts 
to  less  than  five  per  cent.  The  written  clause  discharges  the  under- 
writer from  all  responsibility  for  average  losses,  whether  general 
or  particular,  under  ten  per  cent.  These  clauses  are  inconsistent 
with  each  other,  and  one  or  the  other  must  give  way.  If  the  written 
clause  varies  from  the  printed,  it  is  evidence  of  a  special  contract 
made  in  that  particular  case,  different  from  the  usual  contract  of  in- 
surances ;  and  it  must  necessarily  be  considered  as  the  real  agree- 
ment of  the  parties.  If  the  written  and  the  printed  clauses  can  be 
reconciled  by  any  fair  construction,  it  ought  to  be  done ;  if  they 
cannot,  the  former  must  prevail.  Whether,  in  this  case,  the  not 
qualifying  the  general  expressions,  proceeded  from  mistake  or  was  de- 
signed, is  quite  uncertain.  The  insured  may  possibly  have  expected 
that  the  usual  words,  "unless  general,"  would  be  added,  and  the 
underwriter  may  have  taken  a  smaller  premium  in  consideration  of 
being  exempted  from  general  average  losses,  under  ten  per  cent. 
There  is  no  certain  ground  to  go  upon,  but  the  construction  fairly 
deducible  from  the  expressions  which  the  parties  have  used. 

The  opinion  of  the  court  therefore  is,  that  the  defendants  are  not 
liable  for  the  average  loss,  and  that  judgment  should  be  rendered  for 
them. 


422  marine  insurance 

2.  Ge;neral  Average 


MUTUAL  SAFETY  INS.  CO.  v.  CARGO  OF  THE  GEORGE. 

(District  Court  of  United  States,  Southern  District  of  New  York,  1845. 

01c.  89,  Fed.  Cas.  No.  9.981.) 

The  cargo  and  its  proceeds  are  libelled  in  this  action  by  three  in- 
surance companies  [the  Mutual  Safety  Insurance  Company,  the  Amer- 
ican Insurance  Company,  and  the  Jackson  Marine  Insurance  Com- 
pany], underwriters  on  ship  and  freight,  to  recover  a  contribution 
share  on  general  average,  claimed  to  be  payable  by  the  cargo  on 
board  the  ship  George,  because  of  a  voluntary  stranding  of  the 
vessel  by  her  master  to  save  the  cargo  and  freight.  The  under- 
writers had  accepted  the  abandonment  of  the  ship  and  freight  after 
the  loss  of  the  ship,  and  paid  a  total  loss  on  the  vessel  and  freight. 

The  facts  are  as  follows :  The  George,  being  insured  by  the  libel- 
lants,  (all  the  three  companies  having  underwritten  the  vessel  to  the 
valued  amount  of  twelve  thousand  dollars,  four  thousand  dollars 
each,  and  the  Mutual  Safety  Insurance  Company  having  underwritten 
the  freight  to  the  amount  of  $4,400,  on  a  valuation  of  $6,800,)  sailed 
in  May,  1841,  from  New  Orleans  to  Trieste,  with  a  cargo  of  cotton, 
consigned  to  the  claimants,  Reyea  &  Schlick.  When  about  six  days 
out,  the  vessel  met  with  heavy  weather,  and  sprung  a  leak.  The 
leak  increased,  and  the  master,  after  making  a  fruitless  attempt  to 
reach  the  harbor  of  Nassau,  finally,  with  the  view  to  save  the  "cargo 
from  destruction,  ran  the  ship  on  a  reef,  about  three-quarters  of  a 
mile  from  the  main  land  on  the  west  end  of  the  Grand  Bahamas. 
The  vessel  and  freight  were  wholly  lost,  and  after,  abandonment  to 
the  underwriters,  a  total  loss  was  paid  by  them.  A  large  portion  of 
the  cotton  was  saved,  and  the  proceeds  came  to  the  hands  of  the 
defendants,  [Josiah]  Macy  &  Son,  as  agents  of  Reyea  &  Schlick, 
and  Livingston  &  Barclay.  The  libel  was  now  filed  in  rem  against 
the  cargo  and  its  proceeds,  on  the  ground  that  they  were  bound  to 
contribute  in  general  average  to  the  loss  of  the  vessel  and  freight, 
and  in  personam  against  the  respondents,  as  holders  of  those  proceeds 
or  parts  of  the  cargo. 

Betts,  District  Judge.^  *  *  *  f  he  point  most  contested  on  the 
hearing  is  involved  in  the  objection  that  the  ship-owner  is  not  en- 
titled to  bring  the  value  of  the  ship  into  contribution  on  general 
average,  when  the  peril  to  which  she  was  voluntarily  exposed  resulted 
in  her  total  loss  and  destruction.    The  facts  of  the  case  are  free  from 

0  The  statement  of  facts  is  abridged  from  the  original  report  and  part  of 
the  opinion  is  omitted. 


PARTICULAR    AND   GENERAL   AVERAGE    LOSSES  423 

all  conflict,  and  upon  the  testimony  of  the  master,  it  appears  the 
vessel  was  voluntarily  run  ashore  by  him  to  save  the  cargo,  the  lives 
on  board  not  being  in  danger,  and  was  totally  lost  in  consequence. 
The  policy  and  justness  of  the  rule  which,  in  my  opinion,  warrants 
this  demand,  is  clearly  manifested  by  these  facts,  because,  if  the 
probable  or  even  possible  destruction  of  the  ship  might  follow  the  act, 
the  master  w^ould  have  no  inducement  to  risk  that  sacrifice,  if,  when 
the  total  loss  followed,  no  claim  for  indemnity  could  be  maintained 
against  the  cargo  and  freight  for  whose  benefit  it  was  made.  In 
this  act  are  all  the  requisites  to  a  case  of  general  average.  The  ex- 
posure of  the  ship  to  loss  was  voluntarily  made  by  the  master  and 
crew  for  the  common  benefit  of  the  shippers,  and  solely  for  the  pur- 
pose of  saving  the  cargo.    It  conduced  to  their  preservation. 

The  controlling  test  in  questions  of  average  is  the  voluntary  placing 
of  part  of  the  property  in  peril  by  the  master  and  crew,  for  the 
safety  of  the  residue.  2  Browne,  Civ.  &  Adm.  Law,  199;  Whitte- 
ridge  v.  Norris,  6  Mass.  125.  And  in  vindication  of  the  soundness 
of  the  new  rule,  admitted  in  the  American  courts,  giving  the  value 
of  the  ship  w^hen  she  is  totally  lost  a  right  to  contribution.  Ch.  J. 
Tilghman,  in  Gray  v.  Wain,  says,  if  the  case  is  not  one  of  general 
average,  because  the  ship  was  totally  lost,  the  result  would  be  that 
for  a  small  loss  there  shall  be  compensation,  but  a  great  loss  is  to 
go  without  compensation.    2  Serg.  &  R.  (Pa.)  229,  7  Am.  Dec.  642. 

To  constitute  a  case  of  general  average  it  is  admitted  to  be  es- 
sential that  the  ship  and  cargo  should  be  in  common  danger,  and 
that  a  part  should  be  sacrificed  for  the  preservation  of  the  remainder, 
or,  as  is  laid  down  by  Emerigon  (volume  1,  603),  "le  dommage  n'est 
avaire  grosse,  que  dans  les  cas  ou  il  ete  opere  voluntairement  pover 
le  salut  commerce."  All  these  ingredients  to  a  case  of  general  aver- 
age are  proved  to  exist  in  the  present  instance,  and  it  varies  only 
from  those  described  and  approved  in  the  earliest  edicts  and  adju- 
dications on  the  subject,  in  the  feature,  that  the  ship  was  subjected 
to  a  total  instead  of  a  partial  loss,  in  the  efifort  to  save  the  cargo. 
This  consideration  augments  the  equity  of  the  claim  that  such  loss 
should  be  apportioned,  and  the  property  saved  should  contribute  to- 
wards its  remuneration. 

The  argument  against  the  claim  attempts  to  replace  the  old  doctrine 
declared  by  Emerigon  and  sanctioned  by  the  supreme  court  of  New 
York,  excluding  the  owners  of  a  ship  totally  lost  from  participation 
in  the  general  average  shared  by  the  owners  of  cargo  and  freight. 
Bradhurst  v.  Columbian  Ins.  Co.,  9  Johns.  9;  Emerig.  vol.  1,  c.  12, 
§  13,  p.  614.  "It  will  be  general  average  if  the  stranding  has  been 
voluntarily  made  for  the  common  safety,  provided,  always,  that  the 
ship  be  again  set  afloat;  for  if  the  stranding  be  followed  by  ship- 
wreck, then  it  is,  save  who  can."  To  do  this  efifectually,  the  effort 
is  made  to  distinguish  the  facts  and  principles  acted  upon  by  the 
supreme  court  of  the  United  States  and  other  American  tribunals, 


424  MARINE  INSURANCE 

from  the  broad  and  direct  proposition  presented  by  this  case.  But 
in  my  judgment  no  sound  distinction  can  be  shown  between  them,  and 
the  scope  and  force  of  the  reasoning  and  conclusions  of  the  supreme 
court  embrace  and  dispose  of  every  material  question  made  upon 
that  point  in  the  case. 

Judge  Story,  in  speaking  for  the  court  (Columbian  Ins.  Co.  v.  Ashby, 
13  Pet.  339,  10  L.  Ed.  186):  Surely,  says  he,  the  question  of  con- 
tribution cannot  depend  upon  the  amount  of  the  damage  sustained  by 
the  sacrifice,  for  that  would  be  to  say,  that  if  a  man  lost  all  his 
property  for  the  common  benefit,  he  should  receive  nothing;  but  if 
he  lost  a  part  only  he  should  receive  full  compensation,  and  emphati- 
cally declares  the  law  to  be  that  a  voluntary  stranding  of  the  ship, 
followed  by  a  total  loss  of  the  ship,  but  with  a  saving  of  the  cargo, 
constitute,  when  designed  for  the  common  safety,  a  clear  case  of 
general  average.  In  this  cardinal  doctrine  other  influential  decisions 
concur.  The  principle  to  be  gathered  from  the  new  application  of 
the  rule  is,  that  if  the  voluntary  act  of  the  master  and  crew  is  the 
direct  occasion,  the  efficient  motive  and  cause  of  the  stranding,  the 
loss  becomes  one  of  general  average.  Caze  v.  Reilly.  Fed.  Cas.  No. 
2,538;  2  Browne,  Civ.  &  Adm.  Law,  199;  Whitteridge  v.  Norris. 
6  Mass.  125 ;  Gray  v.  Wain,  2  Serg.  &  R.  (Pa.)  229,  7  Am.  Dec. 
642;    Sims  v.  Gurney,  4  Bin.  513. 

The  Rhodian  law,  whence  the  doctrine  of  contribution  is  derived, 
is  founded  upon  this  principle,  j actus  f actus  levandse  navis  gratia. 
The  particular  loss  incurred  is  elected,  with  a  view  to  the  safety  of 
what  remains.  2  Cond.  Marsh.  536.  There  is  nothing  in  the  adage 
of  the  Rhodian  edict  which  imports  that  a  partial  injury  of  the  prop- 
erty put  in  peril  is  all  that  is  contemplated  by  the  devotion  of  it 
to  relieve  the  common  peril;  on  the  contrary,  the  larger  doctrine  has 
always  been  deduced  from  it,  that  as  the  jettison  is  unreserved,  and 
may  naturally  result  in  the  entire  loss  of  the  property  abandoned  to 
the  risk,  so  the  average  remuneration  shall  correspond  to  and  be 
measured  by  the  degree  of  loss.  Jac.  Sea  Laws,  345 ;  Wesk.  Ins. 
(Fol.  Ed.)  tit.  "General  Average,  Jettison";  Abb.  Shipp.  (Ed.  1829) 
348;    3  Kent.  Comm.  (3d  Ed.)  232. 

This  reference  to  the  foundation  of  the  law  of  general  average  is 
sufficient  to  indicate  that  the  application  of  its  rules  and  principles 
by  the  supreme  court  of  this  state  (9  Johns.  9)  is  in  restraint  of  the 
exalted  and  comprehensive  equity  it  is  designed  to  accomplish  in  cases 
of  common  perils  wherein  the  property  of  one  is  sacrificed  to  pro- 
mote the  safety  of  others  standing  in  equal  exposure.  Had  the  coun- 
sel then  succeeded  on  this  argument  in  raising  a  doubt  whether  the  con- 
clusions of  the  supreme  court  (13  Pet.  [38  U.  S.]  339,  10  L.  Ed.  186) 
were  in  conformity  with  antecedent  adjudications  or  usages  on  this 
subject,  the  doctrine  of  that  decision  supplies  the  more  satisfactory  ex- 
position of  this  important  branch  of  maritime  law,  and  gives  a  rule 
eminently  adapted  to  the  exigencies  of  commercial  navigation. 


PARTICULAR   AND   GENERAL   AVERAGE    LOSSES  425 

Independent  of  this  acquiescence  in  the  soundness  of  the  views  of 
the  court  in  that  case,  I  should  feel  bound  to  conform  to  its  exposi- 
tions of  the  general  principles  and  rules  applicable  to  average  claims, 
although  the  particular  facts  of  this  case  may  be  shown  not  to  be 
exactly  coincident  with  those  on  which  that  judgment  was  founded. 
The  leading  feature  of  that  case  embodies  the  principle  which  con- 
trols this.  But  even  if  it  could  be  demonstrated  that  the  conclusions 
of  the  supreme  court  were  speculative  and  hypothetical,  the  solemn 
enunciation  and  sanction  of  a  rule  of  maritime  law,  by  that  high  tri- 
bunal, would  be  a  guide  and  light  I  should  not  fail  to  follow  in  the 
administration  of  that  law  in  this  court. 

In  commercial  and  maritime  questions,  the  federal  courts  are  not 
governed  by  the  jurisprudence  of  particular  states,  but  by  the  general 
principles  and  doctrines  of  commercial  law,  or  the  law-merchant. 
Swift  V.  Tyson,  16  Pet.  (41  U.  S.)  1,  10  L.  Ed.  865.  I  shall,  there- 
fore, hold  the  libellants,  representing  the  rights  of  the  owners  of  the 
ship,  as  entitled  to  contributions  on  general  average  upon  her  value, 
at  the  place  of  loss,  notwithstanding  she  was  totally  lost  by  the  strand- 
ing. The  act  was  voluntarily  done  by  the  master  with  a  view  to  the 
safety  of  the  cargo  alone.  They  are  entitled  to  contribution  toward 
the  loss,  from  all  that  was  saved,  including  cargo  and  freight.  The 
ship,  cargo  and  freight  are  to  be  estimated  at  their  full  value,  at  the 
place  of  stranding.  That  value  will  be  ascertained  on  the  adjustment 
of  the  average  by  appropriate  proof.  The  invoices  and  bills  of  lad- 
ing will  be  received  as  evidence  of  the  value  of  the  cargo  at  the  place 
of  purchase  and  shipment,  and  the  policies  may  be  consulted  as  evi- 
dence conducing  to  prove  the  worth  of  the  ship  at  the  port  of  de- 
parture, and  the  value  of  the  freight  lost.  3  Kent,  Comm.  167;  Abb. 
Shipp.  607 ;  2  Cond.  Marsh.  618. 

But  additional  evidence  of  the  value  must  be  produced.  The  prin- 
ciples governing  the  valuation  between  assured  and  assurers,  are 
not  conclusive  in  cases  of  average,  because,  in  the  first  instance,  the 
policy  is  the  common  act  of  the  parties  in  interest,  and  may  estop  all 
question  as  to  valuation,  whilst  on  general  average  interests  are  brought 
in  which  are  not  controlled  by  the  policy.  Still  I  think  the  policies 
may  be  admissible  before  the  adjusters  as  auxiliary  proof  of  the  value 
of  the  ship,  cargo  or  freight.  The  decree  will  be  drawn  up  in  cor- 
respondence with  this  decision,  and  all  questions  of  law  which  may 
properly  be  raised  on  the  proceedings  of  the  adjusters  under  it,  may 
be  brought  forward  for  consideration  on  the  coming  in  of  the  adjust- 
ment or  auditor's  report.     *     *     *     Decree  for  libellants. 


426  marine  insurance 

3.  Particular  Average 


WASHBURN  &  MOEN  MFG.  CO.  v.  RELIANCE  MARINE 

INS.  CO. 

(Supreme  Court  of  United  States.  1900.     179  U.  S.  1,  21  Sup.  Ct.  1,  45  L. 

Ed.  49.) 

On  Writ  of  Certiorari  to  the  United  States  Circuit  Court  of  Ap- 
peals for  the  First  Circuit  to  review  a  decision  affirming  a  decree  of 
the  Circuit  Court  in  an  action  at  law  brought  on  a  policy  of  marine 
insurance  in  a  state  court  and  thence  removed  into  the  Circuit  Court 
of  the  United  States  for  the  District  of  Massachusetts. 

See  same  case  below,  50  U.  S.  App.  231,  82  Fed.  296,  27  C.  C. 
A.  134. 

This  was  an  action  at  law  brought  in  the  superior  court  of  Massa- 
chusetts for  the  county  of  Suffolk,  and  thence  removed  into  the  cir- 
cuit court  of  the  United  States  for  the  district  of  Massachusetts,  by 
the  Washburn  &  Moen  Manufacturing  Company  against  the  Reliance 
Marine  Insurance  Company  (Limited)  of  London,  England,  on  a  pol- 
icy of  marine  insurance  taken  out,  March  15,  1893,  in  the  sum  of  $48,- 
800,  on  a  cargo  of  wire  shipped  from  Boston  to  Velasco,  Texas,  on 
the  schooner  Benjamin  Hale,  John  Hall,  master. 

The  memorandum  clause  of  the  policy  ran  thus:  "Memorandum. 
It  is  also  agreed  that  bar,  bundle,  rod,  hoop,  and  sheet  iron,  wire  of 
all  kinds,  tin  plates,  steel,  madder,  sumac,  wickerware,  and  willow 
(manufactured  or  otherwise),  salt,  grain  of  all  kinds,  tobacco,  Indian 
meal,  fruits  (whether  preserved  or  otherwise),  cheese,  dry  fish,  hay, 
vegetables  and  roots,  rags,  hempen  yarn,  bags,  cotton  bagging,  and 
other  articles  used  for  bags  or  bagging,  pleasure  carriages,  household 
furniture,  skins  and  hides,  musical  instruments,  looking-glasses,  and 
all  other  articles  that  are  perishable  in  their  own  nature,  are  warranted 
by  the  assured  free  from  average,  unless  general ;  hemp,  tobacco 
stems,  matting,  and  cassia,  except  in  boxes,  free  from  average  under 
20  per  cent  unless  general;  and  sugar,  flax,  flaxseed,  and  bread  are 
warranted  by  the  assured  free  from  average  under  7  per  cent  unless 
general;  and  coffee  in  bags  or  bulk,  pepper  in  bags  or  bulk,  and  rice, 
free  from  average  under  10  per  cent  unless  general." 

And  on  the  margin  the  following  was  stamped  or  written:  "Free 
of  particular  average,  but  liable  for  absolute  total  loss  of  a  part  if 
amounting  to  five  (5  %)  per  cent." 

The  Benjamin  Hale  sailed  for  Velasco,  March  31,  1893,  and  on 
April  15  ran  ashore  on  Bahama  Banks,  but,  after  throwing  overboard 
200  reels  of  barbed  wire,  floated  and  proceeded.  On  the  night  of 
April  19  the  schooner  again  ran  ashore,  on  Bird  Key,  near  Dry  Tortu- 


PARTICULAR   AND   GENERAL   AVERAGE    LOSSES  427 

g-as,  and  largely  filled  with  water.  Wreckers  came  on  board  April  21. 
The  master  went  to  Key  West,  and  from  thence  telegraphed  the  Wash- 
burn &  Moen  Company,  April  24,  that  the  vessel  was  ashore,  and  he 
thought  the  loss  was  total.  April  24,  25,  or  26  the  agent  of  that  com- 
pany told  the  agent  of  the  insurance  company,  in  Boston,  "what  he 
knew  in  regard  to  the  troubles,  and  said  that  he  wished  to  abandon 
the  cargo  to  the  underwriters."  April  29  a  written  notice  of  a1\indon- 
ment  was  given,  which  the  insurance  company  explicitly  declined  to 
accept.  The  master  returned  at  once  with  further  assistance,  reach- 
ing the  wreck  the  morning  of  April  25,  and  the  vessel  was  floated 
April  29,  and  finally  taken  to  Key  West,  arriving  May  4.  The  cap- 
tain testified  that  "from  the  time  the  vessel  went  ashore  until  she 
came  off  they  were  taking  the  cargo  out  as  they  could  so  as  to  get 
her  off.  *  *  *  Think  about  one  half  of  cargo  was  discharged  on 
the  reef,  of  which  he  thinks  about  1,300  reels  were  dry."  This  was 
substantially  all  carried  to  Key  West,  where  the  unloading  was  com- 
pleted May  10. 

Captain  Hall  made  a  memorandum  at  Key  W^est  as  to  the  condition 
of  the  cargo  when  landed  there.  From  this  it  appeared  that  out  of 
13,051  reels  of  barbed  wire,  shipped  from  Boston,  12,277  (or  12,625) 
were  landed  at  Key  West,  of  which  989  were  perfectly  dry,  and  10,- 
448  had  received  "hardly  perceptible"  damage.  Of  plain  wire,  1,102 
bundles  were  shipped,  and  all  landed  at  Key  West,  and  464  were 
stated  to  be  nearly  dry.  Five  reels  of  salamander  wire  and  a  wire 
rope  were  all  landed  and  transshipped  dry  and  unimpaired ;  also  243 
kegs  of  staples  out  of  249;  and  478  bundles  of  hay  bands  out  of 
1,050. 

The  goods  were  forwarded  from  Key  West  to  Velasco  on  the 
schooner  Cactus,  where  they  were  tendered  to  the  Washburn  &  Moen 
Company,  which  refused  to  receive  them.  That  company  again  aban- 
doned, and  the  insurance  company  again  declined  to  accept  abandon- 
ment. 

At  this  time  a  very  large  part  of  the  goods  existed  in  specie,  and 
a  considerable  part  was  practically  uninjured.  There  were  no  facil- 
ities for  handling,  and  no  market  for,  barbed  wire  at  Key  West,  but 
there  were  at  Velasco,  which  was  also  but  60  miles  by  rail  from 
Houston,  the  headquarters  of  the  general  agent  of  the  manufacturing 
company  in  Texas. 

The  goods  were  afterwards  sold  by  order  of  court  on  the  libel  of 
the  master  of  the  Cactus  for  freight,  demurrage,  and  expenses,  and 
realized  $10,000. 

]\Ir.  Chief  Justice  Fuller  delivered  the  opinion  of  the  court. ^^ 

By  the  memorandum,  wire  of  all  kinds  was  expressly  "warranted 
by  the  assured  free  from  average  unless  general;"    and  by  the  rider, 

10  The  statement  of  facts  is  abridged  from  the  original  report  and  part  of 
the  opinion  is  omitted. 


428  MARINE  INSURANCE 

"free  of  particular  average,  but  liable  for  absolute  total  loss  of  a  part 
if  amounting  to  5  per  cent." 

The  memorandum  and  marginal  clauses  were  in  pari  materia  and  to 
be  read  together.  They  were  not  contradictory,  and  the  rider  merely 
operated  to  qualify  the  memorandum  by  allowing  recovery  for  an 
actual  total  loss  in  part,  which  could  not  otherwise  be  had.  In  other 
words,  the  qualification  was  manifestly  inserted  so  that,  while  conced- 
ing that  under  the  memorandum  clause  no  liability  was  undertaken 
for  a  constructive  total  loss  but  only  a  liability  for  an  actual  total  loss, 
the  insurers  might  be  held  for  an  actual  total  loss  of  a  part. 

The  contracting  parties  thus  recognized  the  rule  that  articles  war- 
ranted free  of  particular  average,  or  free  from  average  unless  gen- 
eral, are  insured  only  against  an  actual  total  loss. 

The  warranty  or  memorandum  clause  was  introduced  into  policies 
for  the  protection  of  the  insurer  from  liability  for  any  partial  loss 
whatever  on  certain  enumerated  articles,  regarded  as  perishable  in 
their  nature,  and  upon  certain  others  none  under  a  given  rate  per  cent. 
This  was  about  1749,  and  since  then,  in  the  growth  of  commerce,  the 
list  of  articles  freed  by  the  stipulation  from  particular  average  has 
been  enlarged  so  as  to  embrace  many,  which,  though  they  may  not  be 
inherently  perishable,  are  in  their  nature  peculiarly  susceptible  to  dam- 
age. 

The  early  form  ran  as  follows:  "Corn,  fish,  salt,  fruit,  flour,  and 
seed  are  warranted  free  from  average,  unless  general  or  the  ship  be 
stranded ;  sugar,  tobacco,  hemp,  flax,  hides,  and  skins  are  warranted 
free  from  average  under  five  pounds  per  cent;  and  all  other  goods, 
and  also  the  ship  and  freight,  are  warranted  free  from  average  under 
three  pounds  per  cent  unless  general  or  the  ship  be  stranded." 

In  1764  Lord  Mansfield  in  Wilson  v.  Smith,  3  Burr.  1550,  held  that 
the  word  "unless"  meant  the  same  as  "except,"  and  that  "the  words 
'free  from  average  unless  general'  can  never  mean  to  leave  the  in- 
surers liable  to  any  particular  average." 

In  Cocking  v.  Fraser,  4  Dougl.  295  (1785),  the  court  of  King's 
bench  held,  Lord  Mansfield  and  Mr.  Justice  Buller  speaking,  that  the 
insurer  was  secured  against  all  damage  to  memorandum  articles,  un- 
less they  were  completely  and  actually  destroyed  so  as  no  longer 
physically  to  exist.     *     *     * 

The  general  rule  is  firmly  established  in  this  court  that  the  insur- 
~  ers  are  not  liable  on  memorandum  articles,  except  in  case  of  actual 
total  loss,  and  that  there  can  be  no  actual  total  loss  where  a  cargo 
of  such  articles  has  arrived,  in  whole  or  in  part,  in  specie,  at  the. port 
of  destination,  but  only  when  it  is  physically  destroyed,  or  its  value 
extinguished  by  a  loss  of  identity.  Biays  v.  Chesapeake  Ins.  Co. 
(1813)  7  Cranch,  415,  3  L.  Ed.  389;  Marcardier  v.  Chesapeake  Ins. 
Co.  (1814)  8  Cranch,  39,  3  L.  Ed.  481 ;  Morean  v.  United  States  Ins. 
Co.  (1816)  1  Wheat.  219,  4  L.  Ed.  75 ;  Hugg  v.  Augusta  Ins.  &  Bkg. 
Co.  (1849)  7  How.  595,  12  L.  Ed.  834;    Great  Western  Ins.  Co.  v. 


PARTICULAR   AND    GENERAL   AVERAGE    LOSSES  429 

Togarty  (1873)  19  Wall.  640,  22  L.  Ed.  216.  And  see  Robinson  v. 
Commonwealth  Ins.  Co.,  3  Sumn.  220,  Fed.  Cas.  Xo.  11,949;  Marean 
V.  United  States  Ins.  Co.,  3  Wash.  C.  C.  256,  Fed.  Cas.  Xo.  9,064. 

Biays  v.  Chesapeake  Ins.  Co.  was  a  case  of  insurance  upon  hides, 
of  which  some  were  totally  lost;  some  were  saved  in  a  damaged  con- 
dition ;  and  some  were  uninjured.  This  court  overruled  the  conten- 
tion that  there  could  be  a  total  loss  as  to  some  of  them  notwithstand- 
ing the  memorandum  clause,  and  Mr.  Justice  Livingston  said: 

"Whatever  may  have  been  the  motive  to  the  introduction  of  this 
-clause  into  policies  of  insurance,  which  was  done  as  early  as  the  year 
1749,  and  most  probably  with  the  intention  of  protecting  insurers 
against  losses  arising  solely  from  a  deterioration  of  the  article,  by  its 
own  perishable  quality;  or  whatever  ambiguity  may  once  have  ex- 
isted from  the  term  average  being  used  in  different  senses,  that  is, 
as  signifying  a  contribution  to  a  general  loss,  and  also  a  particular  or 
partial  injury  falling  on  the  subject  insured,  it  is  well  understood  at 
the  present  day,  with  respect  to  such  [memorandum]  articles,  that  un- 
derwriters are  free  from  all  partial  losses  of  every  kind,  which  do 
not  arise  from  a  contribution  towards  a  general  average. 

"It  only  remains,  then,  to  examine,  and  so  the  question  has  prop- 
erly been  treated  at  bar,  whether  the  hides,  which  were  sunk,  and  not 
reclaimed,  constituted  a  total  or  partial  loss  within  the  meaning  of  this 
policy.  It  has  been  considered  as  total  by  the  counsel  of  the  assured, 
but  the  court  cannot  perceive  any  ground  for  treating  it  in  that  way, 
inasmuch  as  out  of  many  thousand  hides  which  were  on  board,  not 
quite  800  were  lost,  making  in  point  of  value  somewhat  less  than 
one-sixth  part  of  the  sum  insured  by  this  policy.  If  there  were  no 
memorandum  in  the  way,  and  the  plaintiff  had  gone  on  to  recover, 
as  in  that  case  he  might  have  done,  it  is  perceived  at  once  that  he 
must  have  had  judgment  only  for  a  partial  loss,  which  would  have 
been  equivalent  to  the  injury  actually  sustained. 

"But  without  having  recourse  to  any  reasoning  on  the  subject,  the 
proposition  appears  too  self-evident  not  to  command  universal  assent, 
that  when  only  a  part  of  a  cargo,  consisting  all  of  the  same  kind  of 
.articles,  is  lost  in  any  way  whatever,  and  the  residue  (which  in  this 
case  amounts  to  much  the  greatest  part)  arrives  in  safety  at  its  port 
of  destination,  the  loss  cannot  but  be  partial,  and  that  this  must  for- 
ever be  so  so  long  as  a  part  continues  to  be  less  than  the  whole.  This 
loss,  then,  being  a  particular  loss  only,  and  not  resulting  from  a  gen- 
eral average,  the  court  is  of  opinion  that  the  defendants  are  not  liable 
for  it." 

In  Marcardier  v.  Chesapeake  Ins.  Co.  some  of  the  goods  insured 
■were  warranted  "free  from  average  unless  general,"  and  damages  were 
claimed  for  a  constructive  total  loss  of  these  goods,  but  the  claim  was 
disallowed.  After  stating  the  American  rule  that  a  damage  of  ordi- 
nary goods  exceeding  50  per  cent  entitles  the  insured  to  recover  for 
a  constructive  total  loss,  Mr.  Justice  Story  continued: 


430  MARINE  INSURANCE 

"But  this  rule  has  never  been  deemed  to  extend  to  a  cargo  consist- 
ing wholly  of  memorandum  articles.  The  legal  effect  of  the  memor. 
randum  is  to  protect  the  underwriter  from  all  partial  losses;  and  if 
a  loss  by  deterioration,  exceeding  a  moiety  of  value,  would  authorize 
an  abandonment,  the  great  object  of  the  stipulation  would  be  com- 
pletely evaded.  It  seems,  therefore,  to  be  the  settled  doctrine  that 
nothing  short  of  a  total  extinction,  either  physical  or  in  value,  of  mem- 
orandum articles  at  an  intermediate  port,  would  entitle  the  insured  to 
turn  the  case  into  a  total  loss,  where  the  voyage  is  capable  of  being 
performed." 

In  Robinson  v.  Commonwealth  Ins.  Co.,  3  Sumn.  220,  Fed.  Cas.  No. 
11,949,  where  a  clause  in  the  policy  exempted  the  insurers  from  Ha- 
bility  for  any  partial  loss  on  goods  esteemed  perishable  in  their  own 
nature,  and  the  goods  insured  were  held  to  be  perishable,  the  same 
eminent  judge  charged  the  jury: 

"The  principle  of  law  is  very  clear  that,  as  this  is  an  insurance  on 
a  perishable  cargo,  the  plaintiff  is  not  entitled  to  recover,  unless  there 
has  been  a  total  loss  of  the  cargo  by  some  peril  insured  against.  If 
the  schooner  had  arrived  at  the  port  of  destination,  with  the  cargo 
on  board,  physically  in  existence,  the  plaintiff  would  not  have  been 
entitled  to  recover,  however  great  the  damage  might  have  been  by  a 
peril  insured  against,  even  if  it  had  been  99  per  cent,  or,  in  truth,  even 
if  the  cargo  had  there  been  of  no  real  value." 

Part  of  the  cargo  in  Morean  v.  United  States  Ins.  Co.  was  war- 
ranted free  from  average  unless  general,  and  Air.  Justice  Washington 
said : 

"All  considerations  connected  with  the  loss  of  the  cargo,  in  respect 
to  quantity  or  value,  may  at  once  be  dismissed  from  the  case.  As  to 
memorandum  articles,  the  insurer  agrees  to  pay  for  a  total  loss  only, 
the  insured  taking  upon  himself  all  partial  losses  without  exception. 

"If  the  property  arrive  at  the  port  of  discharge,  reduced  in  quantity 
or  value,  to  any  amount,  the  loss  cannot  be  said  to  be  total  in  reality, 
and  the  insured  cannot  treat  it  as  a  total,  and  demand  an  indemnity 
for  a  partial,  loss.  There  is  no  instance  where  the  insured  can  de- 
mand as  for  a  total  loss,  that  he  might  not  have  declined  an  abandon- 
ment, and  demand  a  partial  loss.  But  if  the  property  insured  be  in- 
cluded within  the  memorandum,  he  cannot,  under  any  circumstances, 
call  upon  the  insurer  for  a  partial  loss,  and,  consequently,  he  cannot 
elect  to  turn  it  into  a  total  loss.  *  *  *  The  only  question  that  can 
possibly  arise,  in  relation  to  memorandum  articles  is  whether  the  loss 
was  total  or  not ;  and  this  can  never  happen  where  the  cargo,  or  a 
part  of  it,  has  been  sent  on  by  the  insured,  and  reaches  the  original 
port  of  its  destination.  Being  there  specifically,  the  insurer  has  com- 
plied with  his  engagements ;  everything  like  a  promise  of  indemnity 
against  loss  or  damage  to  the  cargo  being  excluded  from  the  policy." 

In  Hugg  V.  Augusta  Ins.  &  Bkg.  Co.  the  insurance  was  upon 
freight  on  a  cargo  of  jerked  beef,  perishable  articles  being  warranted 


PARTICLLVR   AND   GENERAL    AVERAGE    LOSSES  431 

free  from  average,  and  it  was  held  that  defendant  was  not  liable  for 
a  total  loss  of  freight,  unless  it  appeared  that  the  entire  cargo  was 
destroyed  in  specie.  *  *  *  ;\ji-.  Justice  Nelson,  delivering  the 
opinion  of  the  court,  made  these,  among  other,  observations: 

"What  constitutes  a  total  loss  of  a  memorandum  article  has  been  the 
subject  of  frequent  discussion  both  in  the  courts  of  England  and  this 
country,  and  in  the  former  of  some  diversity  of  opinion ;  but  in  most 
of  the  cases  the  decisions  have  been  uniform,  and  the  principle  gov- 
erning the  question  regarded  as  settled ;  and  that  is,  so  long  as  the 
goods  have  not  lost  their  original  character,  but  remain  in  specie,  and 
in  that  condition  are  capable  of  being  shipped  to  the  destined  port, 
there  cannot  be  a  total  loss  of  the  article,  whatever  may  be  the  ex- 
tent of  the  damage,  so  as  to  subject  the  underwriter.  The  loss  is  but 
partial.     *     *     * 

"The  only  doubt  that  has  been  expressed  in  respect  to  the  sound- 
ness of  this  rule  is  whether  a  destruction  in  value  for  all  the  purposes 
of  the  adventure,  so  that  the  objects  of  the  voyage  were  no  longer 
worth  pursuing,  should  not  be  regarded  as  a  total  loss  within  the  mem- 
orandum clause,  as  well  as  a  destruction  in  specie.  *  *  *  jn  this 
country  the  rule  has  been  uniform  that  there  must  be  a  destruction 
of  the  article  in  specie,  as  will  be  seen  by  a  reference  to  the  follow- 
ing authorities.     *     *     * 

"Whether  the  test  of  liability  is  made  to  depend  upon  the  destruc- 
tion in  specie,  or  in  value,  would,  we  are  inclined  to  think,  as  a  gen- 
eral rule,  make  practically  very  little,  if  any,  difference;  for  while 
the  goods  remain  in  specie,  and  are  capable  of  being  carried  on  in 
that  condition  to  the  destined  port,  it  will  rarely  happen  that  on  their 
arrival  they  will  be  of  no  value  to  the  owner  or  consignee.  The  prop- 
osition assumes  a  complete  destruction  in  value,  otherwise  the  uncer- 
tainty attending  it  would  be  an  insuperable  objection;  and,  in  that 
view,  it  may  be  a  question  even  if  the  degree  of  deterioration  would 
not  be  greater  to  constitute  a  total  loss  than  is  required  under  the 
present  rule. 

"The  rule  as  settled  seems  preferable,  for  its  certainty  and  sim- 
plicity, and  as  affording  the  best  security  to  the  underwriter  against 
the  strong  temptation  that  may  frequently  exist,  on  the  part  of  the 
master  and  shipper,  to  convert  a  partial,  into  a  total,  loss." 

The  case  came  up  on  a  certificate  of  division,  and  the  answer  to 
the  first  question  certified  was : 

"That,  if  the  jury  find  that  the  jerked  beef  was  a  perishable  article 
within  the  meaning  of  the  policy,  the  defendants  are  not  liable  as 
for  a  total  loss  of  the  freight,  unless  it  appears  that  there  was  a  de- 
struction in  specie  of  the  entire  cargo,  so  that  it  had  lost  its  original 
character  at  Nassau,  the  port  of  distress ;  or  that  a  total  destruction 
w^ould  have  been  inevitable  from  the  damage  received,  if  it  had  been 
reshipped  before  it  could  have  arrived  at  ^latanzas,  the  port  of  des- 
tination." 


432  MARINE   INSURANCE 

The  cases  in  this  court  are  reviewed  and  applied  by  Mr.  Justice 
Miller  in  Great  Western  Ins.  Co.  v.  Fogarty,  in  which  it  was  ruled 
that,  where  certain  machinery  had  been  so  injured  as  to  have  lost  its 
identity  as  such,  recovery  for  total  loss  might  be  sustained.     *     *     * 

It  would  subserve  no  useful  purpose  to  attempt  a  review  of  the 
English  cases  on  this  subject.  If  in  England  a  plaintiff  may  recover 
for  a  constructive  total  loss  of  memorandum  articles,  it  is  when  they 
are  so  injured  as  to  be  of  no  substantial  value  when  brought  to  the 
port  of  destination. 

In  the  United  States  (and  herein  is  a  material  difference  between 
the  jurisprudence  of  the  two  countries),  the  general  rule  is  that  a  dam- 
age exceeding  50  per  cent,  justifies  abandonment  and  recovery  as  for 
constructive  total  loss.  Marcardier  v.  Chesapeake  Ins.  Co.,  8  Cranch, 
39,  3  L.  Ed.  481 ;  Le  Guidon  (Paris,  1831)  chap.  VII.  art.  1 ;  chap.  V. 
art.  8.  But  this  principle  is  not  applicable  to  memorandum  articles  in 
respect  of  which  the  exception  of  particular  average  excludes  a  con- 
structive total  loss. 

There  is  no  pretense  here  that  this  wire,  with  some  small  exceptions 
duly  allowed  for,  did  not  exist  at  Key  West,  and  did  not  arrive  at 
Velasco  in  specie,  and,  as  to  a  large  part,  with  its  original  character 
unimpaired.  Abandonment  is  necessary  when  the  loss  is  only  con- 
structively total,  and  under  this  policy  no  right  of  abandonment  ex- 
isted at  the  time  of  the  disaster  or  afterwards,  by  the  exercise  of  which 
the  assured  could  turn  this  partial  loss  in  fact  into  a  total  loss  by 
construction.     *     *     *     Affirmed. 


IV.  The  Insurer's  Liability— Total  Loss  " 


JONES  V.  WESTERN  ASSUR.  CO. 

(Supreme  Court  of  Pennsylvania,   1901.     198  Pa.  206.  47   Atl.  948.) 

Action  by  James  Jones  &  Sons  against  the  Western  Assurance  Com- 
pany of  Toronto,  Ontario.  From  a  judgment  in  favor  of  plaintiffs, 
defendant  appeals. 

Mestrezat,  J.  This  is  an  action  of  assumpsit  brought  to  recover 
$3,000,  the  full  amount  of  a  policy  of  marine  insurance  issued  to  the 
plaintiffs  by  the  defendant  on  the  steam  towboat  Dauntless.  The 
policy  is  dated  January  7,  1897,  and  ran  for  one  year.  There  was  an- 
other policy  on  the  boat  of  like  amount,  and  covering  the  same  pe- 

11  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  225-227.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  2920  et  seq. 


THE    insurer's   LIABILITY — TOTAL    LOSS  433 

riod,  issued  by  the  Eureka  Fire  &  Marine  Insurance  Company  of 
Cincinnati,  Ohio.  The  policy  issued  by  the  defendant  company  fixed 
the  value  of  the  boat,  by  agreement  of  the  parties,  at  $8,000.  It  was 
a  sternwheel  vessel,  and  was  used  for  towing  purposes  in  the  Ohio, 
jMonongahela,  and  Allegheny  rivers.  In  the  early  morning  of  March 
8,  1897,  the  Dauntless  was  taken  to  McLaughlin's  landing,  on  the 
Pittsburg  side  of  the  Allegheny  river,  and  about  three  or  four  hun- 
dred yards  above  the  exposition  buildings,  in  the  city  of  Pittsburg.  It 
lay  there  for  two  hours,  and  about  6:30  o'clock  it  backed  out  from 
the  landing,  and  started  down  the  river  with  an  empty  flat  in  tow. 
The  river  was  high,  and  the  current  was  strong  from  the  Pittsburg 
shore  towards  the  Allegheny  side  of  the  river. 

As  the  boat  was  proceeding  down  the  river,  and  about  500  feet 
above  the  Union  Bridge,  which  spans  the  Allegheny  river  at  the  point, 
the  pilot,  Capt.  Clark,  discovered  that  it  was  in  a  bad  position.  To 
avoid  a  collision  with  the  bridge  pier,  he  stopped,  and  began  to  back 
it  up  the  river,  and  started  to  change  the  rudders.  As  the  boat  was 
backing  the  tiller  line  by  which  the  rudders  are  controlled  by  the 
pilot  parted,  and  it  became  helpless.  In  a  couple  of  minutes  it  struck 
the  Union  Bridge  pier,  the  second  pier  from  the  Pittsburg  side.  The 
boat  struck  on  her  right  side,  and  a  little  back  of  the  middle.  After 
lodging  there  awhile,  the  engineer,  by  direction  of  the  pilot,  shoved  the 
vessel  off  the  pier,  and  it  drifted  down  the  river.  It  soon  filled  up 
pretty  well  with  water,  and  after  going  200  or  300  feet  fell  on  the 
starboard  side,  and  sank  in  about  14  or  15  feet  of  water,  at  the  junc- 
tion of  the  three  rivers.  This  was  about  7  o'clock  in  the  mornins:. 
The  plaintiffs  placed  watchmen  in  charge  of  the  boat,  who  remained 
there  a  few  days,  until  the  defendant  company  took  charge  of  it. 
The  company  was  at  once  notified  of  the  loss,  and  of  the  abandonment 
of  the  vessel.    Proofs  of  the  loss  were  also  duly  furnished. 

The  plaintiffs,  claiming  that  the  boat  was  a  total  loss,  refused  to 
assist  in  raising  it.  The  defendant  took  charge  of  the  boat,  raised 
and  repaired  it,  and  on  the  29th  of  June,  1897,  tendered  it  to  the 
plaintiffs,  claiming  that  it  had  been  restored  to  a  better  condition  than 
it  was  just  previous  to  the  accident  of  March  8,  1897.  At  the  same 
time  the  defendant  presented  the  plaintiffs  with  a  bill  incurred  in 
raising  and  restoring  the  Dauntless,  accompanied  by  a  demand  for  pav- 
ment.  The  plaintiffs  declined  to  receive  the  boat  or  to  pay  the  bill, 
and  brought  this  action. 

The  defendant  company  denied  its  liability  to  the  plaintiffs  for  the 
amount  of  the  policy,  or  any  part  of  it,  and  interposed  various  de- 
fenses at  the  trial  of  the  cause.  The  risks  assumed  by  the  company 
under  the  policy  were  the  unavoidable  dangers  of  rivers,  of  fires,  and 
of  jettisons,  that  should  cause  loss  or  damage  to  the  vessel.  There 
were  specifically  excepted  from  these  risks  "all  perils,  losses,  or  mis- 
fortunes arising  from,  or  caused  by,  the  gross  negligence,  recklessness, 
CooLEY  Ins. — 28 


434  MARINE  INSURANCE 

or  willful  misconduct  of  the  owner,  master,  officers,  or  crew  of  the 
vessel." 

It  was  claimed  on  behalf  of  the  defendant  that  the  loss  of  the  boat 
came  within  these  exceptions ;  that  the  owners  were  guilty  of  gross 
negligence  in  not  providing  a  proper  and  safe  tiller  rope ;  that  the 
pilot  was  guilty  of  gross  negligence  in  trying  to  change  the  rudders 
while  the  boat  was  backing,  and  in  directing  the  engineer  to  shove  it 
off  the  pier.  These  questions  have  been  settled  by  the  verdict.  The 
learned  judge  below  submitted  them  in  a  correct  and  very  careful 
charge,  and  the  jury  has  found  against  the  contention  of  the  defend- 
ant. The  court,  after  referring  to  the  testimony  bearing  upon  the 
subject,  told  the  jury  that  "if  the  owners  were  guilty  of  gross  negli- 
gence in  not  providing  proper  machinery  or  a  proper  tiller  rope,  or 
if  those  in  charge  of  the  boat  were  guilty  of  gross  negligence  with 
reference  to  the  collision  or  in  getting  the  boat  off  the  pier,  then  there 
can  be  no  recovery." 

It  is  further  claimed  that  the  plaintiffs  neglected  their  duty  by  fail- 
ing to  comply  with  clause  5  of  the  policy  after  the  vessel  had  sunk. 
This  clause  provides  that,  in  case  of  loss,  the  assured  shall  use  every 
effort  for  the  safeguard  and  recovery  of  the  vessel  by  employing  such 
means  as  can  be  obtained  for  that  purpose,  and  after  recovery  shall 
cause  it  to  be  repaired,  but,  in  case  of  the  neglect  or  refusal  of  the 
assured  to  do  so,  then  the  company  may  do  it  for  account  of  the  in- 
sured. In  such  case  the  company,  after  taking  from  the  cost  the  de- 
ductions allowed  in  the  policy  in  case  of  a  partial  loss,  shall  contribute 
to  the  cost  of  the  repairs  in  the  proportion  that  the  sum  insured  bears 
to  the  agreed  value.  It  is  provided  in  the  policy  that  the  acts  of  the 
assured  or  assurers  in  saving  or  repairing  the  property  insured  shall 
be  held  not  to  be  a  waiver  or  acceptance  of  the  abandonment  or  of 
an  acknowledgment  of  liability  by  the  assurers. 

The  learned  court  below  thought  that  this  clause  should  be  con- 
strued in  the  light  of,  and  in  connection  with,  clause  8  of  the  policy, 
which  provides  that  there  shall  be  no  abandonment  as  for  a  total  loss, 
on  account  of  the  vessel  grounding,  unless  the  injury  sustained  (ex- 
clusive of  the  cost  of  raising,  docking,  and  any  other  general  average 
charges)  shall  be  equivalent  to  50  per  cent,  of  the  agreed  value  of 
the  vessel.  We  think  the  court  was  clearly  right  in  this  view  of  the 
contract.  He  charged  the  jury  that  if  the  expense  of  repairing  the 
boat  was  equal  to,  or  greater  than,  the  one-half  of  its  value,  then  the 
plaintiffs  had  the  right  to  abandon  it,  and  the  company  could  take 
possession  of  the  boat,  repair  it,  and  sell  it,  or  do  what  they  pleased 
with  it,  and  it  would  be  their  property ;  but  that  "if  the  assured  un- 
reasonably refused  to  join  with  the  defendant  in  raising  that  boat,, 
when  it  could  be  raised  and  repaired  at  a  less  expense  than  fifty  per 
cent,  of  the  agreed  value, — that  is,  less  than  $4,000, —  then  the  plain- 
tiffs could  not  recover  the  whole  of  this  policy,  and  I  will  say  to  you 
that,  if  this  is  the  case  here,  then  there  can  be  no  recovery  at  all." 


THE    insurer's   LIABILITY — TOTAL   LOSS  435 

With  a  slight  inaccuracy  in  regard  to  the  expense  of  raising  the  ves- 
sel, hereafter  referred  to,  we  think  the  learned  judge  correctly  deter- 
mined the  rights  and  liabilities  of  the  parties  under  these  clauses  of 
the  policy,  and  submitted  the  questions  of  fact  arising  thereon  prop- 
erly to  the  jury. 

The  day  of  the  accident  the  plaintiffs  notified  the  defendant  of  their 
loss,  and  the  following  day  filed  with  them  a  marine  protest.  They 
placed  a  watch  in  charge  of  the  wreck,  and  in  three  or  four  days 
the  defendant's  adjuster  assumed  control  of  it.  The  company  raised 
and  repaired  it,  and  tendered  it  to  the  plaintiffs,  alleging  that  the  boat 
was  then  in  a  better  condition  than  before  it  was  injured.  The  plain- 
tiffs, denying  that  such  was  its  condition,  refused  to  accept  it.  The 
learned  judge  in  his  charge  said  there  was  no  provision  in  the  policy 
directly  providing  for  a  tender  back  to  the  assured  of  the  repaired 
vessel,  but,  notwithstanding  the  view  thus  entertained,  he  submitted 
to  the  jury  to  determine  whether  the  boat  was  repaired  so  as  to  be 
as  good  as  it  was  before  the  accident,  and  instructed  the  jury  that  if 
it  was,  and  the  plaintiffs  refused  to  accept  it,  there  could  be  no  recov- 
ery. The  plaintiffs  might  have  objected  to  this  part  of  the  charge  as 
holding  them  to  the  performance  of  an  obligation  not  contained  in 
their  contract,  but.  surely,  the  defendant  has  no  right  to  complain. 

The  next  question  that  need  be  noticed  is  whether  there  was  total 
loss,  as  contemplated  in  the  eighth  clause  of  the  policy,  which  would 
justify  an  abandonment  of  the  vessel.  As  we  have  seen,  clause  8 
of  the  policy  provides  that,  when  the  injury  sustained  (exclusive  of 
certain  costs)  is  equal  to  50  per  cent,  of  the  value  of  the  vessel,  a  total 
loss  shall  exist  justifying  an  abandonment.  At  the  request  of  defend- 
ant, as  contained  in  his  fifth  point,  the  court  charged  that  this  clause 
"must  be  interpreted  as  meaning  that  only  the  actual  amount  spent  in 
repairs  of  the  vessel  shall  be  considered  in  calculating  the  50  per 
centum  of  the  total  valuation  of  the  vessel." 

The  defendant's  contention  is  that  the  repairs  amounted  to  $3,339.65, 
as  shown  by  its  bill  presented  with  the  tender  to  the  plaintiffs  of  the 
Dauntless  after  the  vessel  had  been  repaired.  It  was  claimed  by  the 
defendant  that  with  these  repairs  the  boat  was  in  a  better  condition 
than  it  was  prior  to  the  accident.  On  the  other  hand,  this  contention 
was  met  on  the  part  of  the  plaintiffs  by  the  allegation  that  when  the 
vessel  was  tendered  to  them  it  was  not  in  as  good  condition  as  it  was 
prior  to  the  accident,  and  to  put  it  in  such  condition  would  require 
an  additional  expenditure  of  at  least  $2,700.  This  would  make,  as 
claimed  by  the  plaintiffs,  the  cost  of  repairing  largely  in  excess  of  the 
$4,000,  50  per  centum  of  the  value  of  the  vessel.  Each  side  presented 
testimony  to  sustain  its  contention  in  this  respect,  but  it  is  not  neces- 
sary to  refer  to  it  in  detail,  as  we  are  of  opinion  that  under  it  the 
jury  was  justified  in  finding  against  the  defendant. 

The  sixth  point  alleges  error  by  the  court  in  including  the  expense 
of  raising  the  boat  in  the  50  per  cent,  of  its  value  required  to  make 
the  total  loss.     That  part  of  the  charge  is  not  accurate,  but  any  error 


436  MARINE   INSURANCE 

that  might  have  arisen  from  it  was  cured  by  the  statements  in  other 
parts  of  the  charge  that  the  vessel  could  not  be  abandoned  unless  the 
cost  of  the  repairing  exceeded  one-half  the  value  of  the  boat,  and  the 
positive  statement  in  the  defendant's  fifth  point,  which  was  affirmed 
by  the  court,  that  clause  8  of  the  policy  "must  be  interpreted  as  mean- 
ing that  only  the  actual  amount  spent  in  repairs  of  the  vessel  shall  be 
considered  in  calculating  the  50  per  cent,  of  the  total  valuation  of  the 
vessel." 

To  summarize :  The  plaintiffs,  alleging  that  it  was  impracticable  to 
repair  the  boat  within  the  terms  of  the  policy,  refused  to  assist  in  rais- 
ing and  repairing  it,  and  abandoned  the  vessel.  The  company  raised 
and  repaired  it,  and,  claiming  that  the  repairs  were  less  than  one-half 
of  its  value,  tendered  the  boat  to  the  plaintiffs,  and  demanded  pay- 
ment of  the  plaintiffs'  proportion  of  the  cost  of  raising  and  repairing. 
Under  proper  instructions,  the  jury  has  found  that  the  cost  of  the  re- 
pairs did  exceed  the  one-half  of  the  value  of  the  boat,  and  hence,  un- 
der the  provisions  of  the  policy,  there  was  a  total  loss.  The  plaintiffs 
were  therefore  justified  in  their  action  in  abandoning  the  boat,  and, 
of  course,  in  claiming  the  full  amount  of  their  policy.  The  questions 
raised  on  the  trial  by  the  learned  counsel  for  the  defendant  company 
were  all  submitted  to  the  jury  by  the  court,  with  substantially  correct 
instructions.  The  offer  to  explain  the  policy  by  parol  testimony  was 
properly  refused. 

We  see  no  error  in  the  record  requiring  us  to  reverse  the  court  be- 
low. The  assignments  of  error  are  overruled,  and  the  judgment  is  af- 
firmed. 


MURRAY  V.  GREAT  WESTERN  INS.  CO. 

(Supreme  Court  of  New  York,   General  Term,   First  Department,  1893.     72 

Hun,  282,  25  N.  Y.  Supp.  414.) 

Action  by  Joseph  K.  Murray,  as  trustee  for  mortgage  bondholders 
of  the  steamship  Cleopatra,  against  the  Great  Western  Insurance 
Company,  on  a  marine  policy  of  insurance.  From  a  judgment  entered 
on  a  verdict  in  plaintiff's  favor,  and  from  an  order  denying  a  mo- 
tion for  a  new  trial,  made  on  the  minutes,  defendant  appeals. 

FoLLETT,  J. ^2  This  action  was  brought  to  recover  on  a  marine  pol- 
icy of  insurance,  by  which  the  defendant  insured  the  Cleopatra  against 
perils  of  the  sea  for  one  year  from  September  16,  1878,  for  $9,000, 
under  a  policy  in  which  the  vessel  was  valued  at  $75,000.  The  policy 
was  taken  out  by  and  in  the  name  of  the  owners  of  the  ship;  but, 
by  an  indorsement,  the  loss,  if  any,  was  made  payable  to  the  plaintiff, 
as  trustee  for  certain  mortgage  bondholders.  The  vessel  was  also  in- 
sured by  other  underwriters  for  $38,000. 

12  Part  of  the  opinion  is  omitted.  Attirmed  by  the  Court  of  Appeals,  with- 
out opinion,  147  N.  Y.  711,  42  N.  E.  724. 


THE   insurer's   LIABILITY — TOTAL    LOSS  437 

The  Cleopatra  was  a  wooden  steamship,  of  about  1,045  tons  bur- 
den, built  in  1865.  In  August,  1878,  she  was  found  to  be  considerably 
"hogged,"  both  ends  being  lower  than  the  center;  and  in  that  month 
she  was  repaired,  strengthened,  and  supplied  with  new  boilers.  At 
this  time,  and  at  the  time  of  the  stranding,  David  Golden  Murray, 
Lindley  Murray  Ferris,  Jr.,  and  Robert  M.  Ferris,  constituting  the 
firm  of  Murray,  Ferris  &  Co.,  were  the  owners  of  ®^/ioo,  and  Sophus 
Valentine,  the  master,  was  the  owner  of  ^^/loo.  To  secure  the  pay- 
ment of  $20,000,  the  cost  of  the  repairs,  Murray,  Ferris  &  Co.,  Sep- 
tember 18,  1878,  mortgaged  their  interest  in  the  ship  to  Joseph  K. 
Murray,  as  trustee,  to  secure  the  payment  of  40  bonds  of  $500  each. 
The  mortgagors  stipulated  in  the  mortgage  to  keep  the  vessel  insured 
for  $25,000  for  the  benefit  of  the  trustee.  There  was  a  prior  mort- 
gage of  $6,000  on  the  ship,  held  by  Joseph  K.  Murray,  individually, 
which  he  stipulated  should  become  the  second  lien. 

After  the  ship  had  been  so  repaired  and  insured,  she  made  one 
round  voyage  between  New  York  and  Santiago  de  Cuba  via  Nassau 
and  Cienfuegos  without  accident,  and  October  17,  1878,  she  left  New 
York  on  a  second  round  voyage  between  the  same  ports. 

October  23,  1878,  the  vessel  was  stranded  on  a  reef  in  Douglas 
channel,  near  Nassau,  New  Providence, — one  of  the  Bahama  islands. 
December  18,  1878,  the  owners  gave  the  defendant  written  notice  of 
the  stranding,  and  that  they  abandoned  the  vessel  to  the  insurers ; 
and  March  18,  1879,  the  plaintiff,  as  trustee,  gave  a  like  notice,  in 
which  the  owners  also  joined. 

It  is  conceded  that  the  vessel  was  considerably  injured  by  the  ac- 
cident, and  the  plaintiff  asserts  that  he  and  the  owners  were  justified 
in  abandoning  her,  and  that  he  is  entitled  to  recover  for  a  constructive 
total  loss. 

Besides  the  question  of  damages,  the  only  issue  of  fact  submitted 
to  the  jury  (neither  party  requesting  the  submission  of  any  other)  was 
whether  the  vessel  was  so  injured  that  it  became  a  constructive  total 
loss.  This  issue  has  been  three  times  tried, — First,  at  special  term, 
before  Mr.  Justice  Donohue,  where  a  judgment  was  rendered  for  the 
plaintiff;  second,  before  a  jury  which  disagreed;  and,  lastly,  before 
the  jury  which  rendered  the  verdict  on  which  this  judgment  now  un- 
der review  was  entered. 

The  policy  provides :  "And  it  is  further  agreed  that,  in  case  a  total 
loss  shall  be  claimed  for  or  on  account  of  any  damage  or  charge  to 
the  said  vessel,  the  only  basis  of  ascertaining  her  value  shall  be  her 
valuation  in  the  policy." 

The  valuation  clause  in  the  policy  is  as  follows: 

"Hull  and  apparel  valued  at $37,500 

Boilers  and  machinery  valued  at 37.500 

Total   $75,000 


438  MARINE   INSURANCE 

"The  valuation  of  hull,  tackle,  and  apparel  being  made  separate 
from  that  of  the  boilers  and  machinery,  it  is  agreed  that  no  abandon- 
ment of  one  interest,  as  valued,  shall  be  made  unless  there  shall  be 
a  total  loss  of  the  other." 

It  was  further  provided  in  the  policy:  "And,  lastly,  it  is  agreed 
that,  in  case  of  any  claim  for  loss  or  damage,  a  deduction  of  one-third 
from  the  cost  of  repairing  or  replacing  the  same  shall  be  made,  after 
deducting  the  value  of  the  old  materials,  except  in  the  case  of  anchors, 
and  of  sheathing  of  copper  and  other  metal;  a  deduction  of  one- 
fortieth  from  the  expense  of  repairing  or  replacing  the  metal  sheath- 
ing, or  any  part  thereof  (after  first  deducting  the  value  of  the  old 
metal  and  nails)  shall  be  made  for  every  month  since  the  vessel  wab 
last  sheathed  until  the  expiration  of  forty  months,  after  which  time 
the  cost  of  remetalling  or  repairing  the  same  shall  be  wholly  borne  by 
the  assured.  If  a  technical  total  loss  shall  be  claimed,  similar  deduc- 
tions shall  be  made  from  the  estimated  repairs,  and,  unless  the  net 
cost  thereof  would  exceed  a  moiety  of  the  value  of  the  vessel  after 
making  such  deduction,  the  loss  shall  be  deemed  partial,  only." 

The  term  "technical  total  loss"  is  used  in  the  policy,  which  means 
the  same  as  "constructive  total  loss."  2  Phil.  Ins.  237;  2  Pars.  Mar. 
Law,  336;   2  Pars.  Mar.  Ins.  110. 

Mr.  Arnould,  in  his  learned  work  on  Marine  Insurance,  (volume  2, 
[6th  Ed.]  p.  951,)  defines  the  term  "constructive  total  loss"  as  fol- 
lows: "An  absolute  total  loss  takes  place  when  the  subject  insured 
wholly  perishes,  or  there  is  a  privation  of  it,  and  its  recovery  is  hope- 
less. A  constructive  total  loss  takes  place  when  the  subject  insured 
is  not  wholly  destroyed,  but  its  destruction  is  rendered  highly  proba- 
ble, or  the  privation  of  it,  though  not  quite  irretrievable,  is  such  that 
its  recovery  is  either  exceedingly  doubtful,  or  too  expensive  to  be 
worth  the  attempt.  An  absolute  total  loss  entitles  the  assured  to  claim 
from  the  underwriter  the  whole  amount  of  his  subscription.  A  con- 
structive total  loss  entitles  him  to  make  such  claim  on  condition  of 
giving  notice  of  abandonment  of  all  right  and  title  to  any  part  of  the 
property  that  may  still  exist,  or  may  still  be  recovered."  This  defini- 
tion by  the  courts  and  text-books.  3  Kent,  Comm.  318;  2  Phil.  Ins. 
237;  2  Pars.  I\Iar.  Ins.  107,  and  cases  cited. 

The  foregoing  is  the  general  rule,  but  in  cases  of  injuries  to  ves- 
sels, and  in  the  absence  of  stipulations  in  the  policies  on  the  subject, 
the  courts  of  different  jurisdictions  do  not  agree  as  to  the  proportion 
which  the  cost  of  repairing  must  bear  to  the  value  of  the  ship,  so 
as  to  justify  an  abandonment,  and  a  claim  for  a  constructive  total  loss. 
Dickey  v.  Insurance  Co.,  4  Cow.  222,  affirmed  3  Wend.  658,  20  Am. 
Dec.  763;  Suarez  v.  Insurance  Co.,  2  Sandf.  482,  2  Pars.  Mar.  Ins. 
125  et  seq. ;  2  Arn.  :\Iar.  Ins.  (6th  Ed.)  952;  Irving  v.  Manning,  1 
H.  L.  Cas.  287.  And  the  courts  do  not  agree,  in  the  absence  of  stip- 
ulations on  the  subject,  whether  the  valuation  in  the  policy,  if  the 
vessel  be  therein  valued,  or  the  value  of  the  ship  just  before  the  in- 


THE    insurer's    LIABILITY — TOTAL    LOSS  439 

jury,  or  its  value  after  reparation,  should  be  taken  as  the  basis  in 
estimating  the  proportion  of  the  cost  of  repairs  to  value.  Insurance 
Co.  V.  Ogden,  20  Wend.  287;  Wallerstein  v.  Insurance  Co.,  44  N.  Y. 
204,  217,  4  Am.  Rep.  664;  Insurance  Co.  v.  Southgate,  5  Pet.  604, 
8  L.  Ed.  243;  Deblois  v.  Insurance  Co.,  16  Pick.  (Mass.)  303,  28 
Am.  Dec.  245;  Peele  v.  Insurance  Co.,  3  Mason,  27,  Fed.  Cas.  No. 
10,905;  Bradlie  v.  Insurance  Co.,  12  Pet.  378,  9  L.  Ed.  1123;  3 
Kent,  Comm.,  331 ;  2  Pars.  Mar.  Ins.  134;  2  Arn.  Mar.  Ins.  (6th  Ed.) 
995,  1046,  1035,  1148. 

In  the  case  at  bar,  it  is  provided  in  the  policy  that  a  constructive 
total  loss  shall  not  be  claimed  unless  the  net  cost  of  repairs,  after 
making  the  deductions  specified  in  the  clause,  exceed  one-half  of  the 
value  of  the  vessel.  In  this  state  the  rule  is  that,  in  determining 
whether  a  ship  is  so  far  injured  as  to  become  a  constructive  total  loss, 
its  value  as  stated  in  the  policy  controls.  Insurance  Co.  v.  Ogden. 
supra;  Wallerstein  v.  Insurance  Co.,  supra;  3  Kent,  Comm.  331. 
This  is  also  the  rule  in  Massachusetts,  (Deblois  v.  Insurance  Co.,  su- 
pra,) and  in  England,  (Irving  v.  Manning,  supra;  1  Arn.  Mar.  Ins. 
[6th  Ed.]  301). 

The  supreme  court  of  the  United  States  holds  that  the  actual  value 
of  the  ship  immediately  before  the  accident  is  to  govern.  Insurance 
Co.  V.  Southgate,  supra;  Bradlie  v.  Insurance  Co.,  supra;  3  Kent, 
Comm.  331. 

The  learned  trial  judge  instructed  the  jury  in  accordance  with  the 
rule  of  this  state,  which  was  acquiesced  in  at  the  trial  by  the  liti- 
gants, and  the  accuracy  of  the  instruction  is  not  questioned  by  coun- 
sel on  this  appeal.  Whether  the  extent  of  the  injuries  sustained  by 
the  vessel  was  sufficient  to  justify  its  abandonment,  within,  the  rule 
of  this  state,  was  a  sharply-contested  issue  of  fact,  which  the  appel- 
lant insists  was  determined  contrary  to  the  weight  of  evidence.    *    *    * 

Was  a  legal  abandonment  effected?  As  before  stated,  the  owners 
gave  the  defendant  written  notice  of  abandonment  on  the  18th  of 
December,  1878,  in  which  the  plaintiff  did  not  join.  It  is  now  as- 
serted that  the  owners  having  mortgaged  the  vessel,  and  the  insur- 
ance being  payable  by  indorsement  to  the  mortgagee,  they  were  with- 
out power  to  make  a  legal  abandonment.  The  mortgage  is  in  the 
ordinary  form,  and  contains,  in  form,  an  absolute  conveyance  of  the 
title,  with  a  defeasance.  It  recites  that  it  is  made  to  secure  the  pay- 
ment of  40  bonds  of  $500  each,  with  interest,  and  that  when  tliey  are 
paid  the  mortgage  shall  be  void.  The  mortgage  further  provides: 
"And,  until  default  shall  have  been  made  by  the  parties  of  the  first 
part  in  payment  of  said  bonds,  the  parties  of  the  first  part  shall  be 
permitted  to  possess  and  use  the  said  steamship  and  appurtenances,  and 
to  repair  and  renew  the  same,  and  to  take  and  use  the  income  thereof, 
and  apply  the  same  to  the  necessary  current  expenses  and  the  pur- 
chase of  necessary  machinery  and  equipments,  or  dispose  of  the  same 
for  the  legal  uses  of  the  mortgagors,  in  any  manner  not  inconsistent 


440  MARINE   INSURANCE 

with  this  mortgage."  It  provides  that,  in  case  default  shall  be  made 
in  the  performance  of  any  of  the  mortgagors'  covenants,  the  mort- 
gagee may  take  possession  of  the  vessel,  and  sell  or  dispose  of  the 
same  at  public  or  private  sale.  The  mortgagors  covenanted  that  they 
would  keep  the  ship  insured  for  at  least  $25,000,  and  assign  the  as- 
surances to  the  mortgagee  as  additional  security. 

A  legal  abandonment  cannot  be  effected  unless  the  person  who  as- 
sumes to  make  it  has  at  the  time  of  the  loss  the  power  to  make  a 
legal  transfer  of  the  property  abandoned.  2  Pars.  Mar.  Ins.  119;  2 
Arn.  Mar.  Ins.  (6th  Ed.)  956.  In  Hunt  v.  Royal  Exchange  Assur- 
ance, 5  Maule  &  S.  47,  it  was  held  that,  where  an  insurance  was  ef- 
fected by  part  of  the  owners,  they  might  make  a  legal  abandonment 
for  all  of  the  joint  owners.  In  Insurance  Co.  v.  Stark,  6  Cranch,  26S, 
3  L.  Ed.  220,  it  was  held  that  an  agent  who  procured  an  insurance 
for  his  principal,  and  who  abandoned  the  subject  of  the  insurance, 
must,  in  the  absence  of  evidence  that  he  was  without  authority,  be 
presumed  to  have  had  authority  to  make  the  abandonment.  In  Gor- 
don V.  Insurance  Co.,  2  Pick.  (IMass.)  249,  260,  a  vessel  was  insured 
in  the  name  of  the  plaintiff,  who  was  the  owner.  Afterwards,  he 
executed  an  absolute  bill  of  sale  of  the  ship,  which  contained  no  de- 
feasance. By  the  instrument  the  title  to  the  property  was  not  to  re- 
vest in  the  plaintiff  upon  the  performance  of  any  condition.  It  was 
shown,  however,  on  the  trial,  that  the  bill  of  sale  was  intended  as 
security  for  the  payment  of  debts  due  from  the  owner  to  the  trans- 
feree. It  was  held  that  by  virtue  of  the  absolute  transfer  the  plain- 
tiff had  divested  himself  of  the  legal  title  to,  and  dominion  over,  the 
property;  could  transfer  none,  and  could  not  abandon  it  to  the  in- 
surers. In  Bidwell  v.  Insurance  Co.,  19  X.  Y.  179,  the  defendant  in- 
sured a  vessel  on  account  of  Crocker,  the  owner;  the  loss,  if  any, 
payable  to  Bidwell,  the  mortgagee.  It  was  stated  in  the  policy  that 
there  were  no  other  liens  upon  the  vessel.  A  loss  occurred,  and  it 
turned  out  that  there  were  two  prior  mortgages  on  the  vessel.  It 
was  held  that  the  insurance  was  of  Crocker,  the  owner,  upon  the 
vessel,  and  not  of  Bidwell,  upon  his  interest  as  mortgagee  of  Crocker's 
equity  of  redemption,  and  that  the  mortgagee  could  not  recover  on 
the  policy.  In  the  case  at  bar  the  insurance  was  of  the  interest  of 
the  owners,  not  of  the  interest  of  the  mortgagee.  In  Younger  v.  In- 
surance Co.,  1  Spr.  236,  Fed.  Cas.  Xo.  5,487,  affirmed  2  Curt.  322, 
Fed.  Cas.  No.  5,487  it  was  held  that  the  master  of  the  vessel  has 
not,  by  virtue  of  his  office,  authority  to  abandon  her  to  the  under- 
writers. 

In  all  the  cases  the  right  to  abandon  turned  on  the  power  of  the 
person  tendering  abandonment  to  transfer  title  to  the  subject  of  the 
insurance  to  the  insurer.  In  the  case  at  bar  the  owners  had  the  un- 
doubted right  to  transfer  the  vessel  to  the  insurer,  and  therefore 
could  effect  a  legal  abandonment  of  her.  In  addition,  the  owners 
procured  the  insurance  for  the  mortgagee,  who  subsequently,  March 


THE    insurer's    LIABILITY — TOTAL    LOSS  441 

12,  1879,  notified  the  defendant  that  the  owners'  notice  of  abandon- 
ment, of  December  18.  1878,  was  given  with  his  authority,  and  that  he 
ratified  and  confirmed  it.  This  brings  the  case  within  the  principle 
of  Insurance  Co.  v.  Stark,  supra.  It  appears  in  this  case  that  June 
20,  1878,  the  owners  mortgaged  the  vessel  to  Joseph  K.  Murray  to 
secure  the  payment  of  $6,000,  and  June  21,  1878,  to  Murray  to  secure 
the  payment  of  $4,000,  both  mortgages  falling  due  September  14, 
1878.  These  mortgages  are  not  in  the  case,  and  we  are  ignorant  of 
their  terms,  nor  do  we  know  that  they  were  unpaid  when  the  vessel 
was  stranded. 

Was  the  abandonment  timely?  November  26,  1878,  the  second 
and  final  survey  was  made,  and  a  notice  of  abandonment  was  served 
December  18.  1878.  The  case  does  not  disclose  how  frequently  mails 
were  transmitted  between  Nassau  and  New  York,  nor  whether  there 
was  telegraphic  communication  between  those  ports,  although  it  ap- 
pears inferentially  from  the  letter  of  Murray,  Ferris  &  Co.,  of  No- 
vember 15,  1878,  put  in  evidence  by  the  defendant,  that  Savannah 
was  the  nearest  and  most  convenient  telegraph  station.  In  Insurance 
Co.  V.  Stark,  Chief  Justice  JMarshall,  speaking  for  the  court,  said : 
"The  law  is  settled  that  an  abandonment,  to  be  eflfectual,  must  be 
made  in  reasonable  time;  but  what  time  is  reasonable  is  a  cjuestion 
compounded  of  fact  and  law,  which  has  not  yet  been  reduced  to  such 
certainty  as  to  enable  the  court  to  pronounce  upon  it  without  the  aid 
of  a  jury.  Certainly,  the  delay  may  be  so  great  as  to  enable  every 
man  to  declare,  without  hesitation,  that  it  is  unreasonable,  or  the 
abandonment  may  be  so  immediate,  that  all  will  admit  it  to  have  been 
made  in  a  reasonable  time ;  but  there  may  be  such  a  medium  between 
these  extremes  as  to  render  it  doubtful  whether  the  delay  has  been 
reasonable  or  otherwise.  If  it  was  a  mere  question  of  law,  which  the 
court  might  decide,  then  the  law  would  determine,  to  a  day  or  an 
hour,  on  the  time  left  for  deliberation,  after  receiving  notice  of  the 
loss.  But  the  law  has  not  so  determined,  and  it  therefore  remains 
a  question  compounded  of  fact  and  law,  which  must  be  found  by  a 
jury  under  the  direction  of  the  court." 

The  defendant  asked  the  court  to  decide,  as  a  matter  of  law,  that 
the  abandonment  was  not  made  within  a  reasonable  time,  but  made 
no  request  that  any  question  of  fact  involved  in  that  issue  be  deter- 
mined by  the  jury,  thus  leaving  the  court  to  determine  all  questions 
and  inferences  of  fact  arising  from  the  evidence  bearing  on  this 
question.  The  facts,  and  inferences  from  them,  having  been  found 
against  the  defendant,  it  is  not  apparent  that  the  question  of  rea- 
sonable time  was  erroneously  determined  by  the  court.  *  *  * 
Modified. 


442  MARINE  INSURANCE 


V.  Abandonment  ^' 


MURRAY  V.  GREAT  WESTERN  INS.  CO. 

(Supreme  Court  of  New  York.   General   Term,   First  Department,   1893.     72 

Hun.  282,  25  N.  Y.  Supp.  414.) 

For  a  report  of  this  case,  see  ante,  p.  436. 

1 3  For  discussion  of  principles,  see  Vance  on  Insurance,  §  228.     See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  2949  et  seq. 


ACCIDENT  INSUUANCE 


443 


ACCIDENT  INSURANCE 
I.  Accidental  Injuries — External,  Violent,  and  Accidental  Causes  ^ 


MARYLAND  CASUALTY  CO.  v.  HUDGINS. 

(Court  of  Civil  Appeals  of  Texas,  1903.     72  S.  W.  1047.) 

Action  by  Sallie  N.  Hudgins  against  the  Maryland  Casualty  Com- 
pany.   Judgment  for  plaintiff,  and  defendant  appeals. 

Rainey,  C.  J.-  Suit  on  accident  insurance  policy  issued  by  ap- 
pellant to  Wm.  T.  Hudgins,  husband  of  appellee.  Hudgins  died  No- 
vember 1,   1900.     *     *'  * 

The  other  issue  raised  by  the  assignments  is  that  defendant  is  not 
liable  under  the  terms  of  the  policy,  the  evidence  failing  to  show  that 
death  resulted  from  an  accidental  cause.  The  policy  provided  for 
indemnity  in  case  of  death  sustained  through  "external,  violent,  and 
accidental  means"  independent  of  all  other  causes.  It  contained  a 
clause  which  reads  as  follows :  "This  insurance  does  not  cover  disap- 
pearances, nor  war  risks,  nor  voluntary  exposure  to  danger,  unless  in- 
curred in  an  attempt  to  save  human  life,  nor  injuries  received  while 
attempting  to  board  or  alight  from  a  moving  conveyance  propelled  by 
steam,  electricity,  or  cable  (except  that  in  case  of  injuries  received 
while  boarding  or  alighting  from  such  conveyances  while  running  at 
a  rate  of  speed  not  greater  than  eight  miles  an  hour,  the  assured 
shall  be  covered  by  clause  1  hereof),  nor  injuries,  fatal  or  other- 
wise, resulting  from  poison  or  anything  accidentally  or  otherwise 
taken,  administered,  absorbed  or  inhaled  (anaesthetics  administered  by 
a  regular  physician  excepted),  nor  injuries,  fatal  or  otherwise,  re- 
ceived while  or  in  consequence  of  having  been  under  the  inlluence  of 
or  affected  by  or  resulting  directly  or  indirectly  from  intoxicants, 
narcotics,  vertigo,  sleepwalking,  fits,  hernia,  or  any  disease  or  bodily 
infirmity.  But  it  is  understood  this  policy  covers  the  assured  accord- 
ing to  the  terms  hereof  in  the  event  of  his  injury  from  freezing,  sun- 
stroke, drowning,  or  choking  in  swallowing." 

The  evidence  shows  that  on  Sunday,  October  28,  1900,  the  in- 
sured, his  wife,  and  son  were  together  at  dinner  at  the  Randolf  Hotel, 
in  Texarkana,  Tex.  The  insured  ordered  raw  oysters  for  himself 
and  son.  When  he  had  eaten  two  and  the  son  one,  he  said  to  his 
wife:    "Don't  let  that  child  eat   any  more  of  those  oysters.     They 

1  For  discussion  of  principles,  see  Vance  on  Insurance.  §  2.32.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  315G  et  seq. 

2  Part  of  the  opinion  is  omitted. 


444  ACCIDENT  INSURANCE 

are  not  sound.  They  are  tough."  He  was  taken  sick  that  evening, 
complained  of  pains  in  his  stomach,  grew  worse,  and  died  the  fol- 
lowing Thursday,  November  1,  1900.  The  unsound  oysters  produced 
the  death  of  the  insured  by  passing  out  of  the  large  part  of  the 
stomach,  lodging  in  the  lower  part  of  the  stomach  or  upper  intestine, 
inflaming  the  intestinal  tract  and  mucous  membrane,  causing  the  same 
to  enlarge,  locking  the  bowels,  obstructing  and  preventing  passage,. 
and  thereby  producing  death.  Said  oysters  contained  no  poison  v/hat- 
ever  of  any  description.  The  insured  did  not  discover  that  the  oysters 
were  unsound  until  he  had  eaten  the  two,  and  then  ate  no  more. 

It  is  contended  that  the  policy  exempted  the  company  from  liability 
for  "injuries,  fatal  or  otherwise,  resulting  from  poison  or  anything- 
accidentally  or  otherwise  taken,  administered,  absorbed,  or  inhaled," 
and  the  act  of  the  insured  in  eating  the  oysters  falls  within  the  terms 
of  said  provision ;  that  he  ate  them  voluntarily,  consciously,  and  in- 
tentionally; therefore  they  were  not  "accidentally"  taken.  Construc- 
tion of  clauses  in  policies  similar  to  the  one  here  under  consideration 
have  been  the  subject  of  much  dissension  by  the  courts,  and  the 
opinions  show  a  want  of  harmony  in  the  views  entertained.  Some 
of  the  courts  support  the  contention  of  appellant,  while  others  of 
equal  weight  support  the  contention  of  appellee,  in  effect,  that  eating 
of  the  oysters  not  knowing  they  were  unsound,  he  did  not  voluntarily 
eat  unsound  oysters,  and  death  produced  thereby  was  accidental. 

The  evidence  clearly  shows  that  the  insured  did  not  intend  to  eat 
unsound  oysters.  If  such  eating  falls  within  the  meaning  of  the 
word  "accident,"  as  that  word  is  ordinarily  defined  and  understood, 
then  the  proper  judgment  has  been  rendered  in  this  case.  "Death  as 
the  result  of  accident  imports  an  external  and  violent  agency  as  the 
cause."  Healey  v.  Association,  133  111.  556,  25  N.  E.  52,  9  L.  R.  A. 
371,  23  Am.  St.  Rep.  637;  Miller  v.  Fidelity  &  Casualty  Co.  (C.  C.) 
97  Fed.  836;  Association  v.  Alexander,  104  Ga.  709,  30  S.  E.  939. 
42  L.  R.  A.  188;  Association  v.  Smith,  29  C.  C.  A.  223,  85  Fed. 
401,  40  L.  R.  A.  653 ;  Am.  &  Eng.  Ency.  Law,  vol.  1,  294-5.     *     *     * 

In  Association  v.  Barry,  131  U.  S.  100,  9  Sup.  Ct.  75S,  33  L.  Ed. 
60,  it  is  said:  "If  in  the  act  which  precedes  the  injury  something 
unforeseen,  unexpected,  unusual  occurs,  which  produces  the  injury,, 
then  the  injury  resulted  through  accidental  means."  In  Supreme 
Council  Chosen  Friends  v.  Garrigus,  104  Ind.  133,  3  N.  E.  822,  54 
Am.  Rep.  298,  it  is  said :  "The  word  'accident,'  as  used  in  those  laws 
and  in  the  relief  fund  certificates  held  by  members,  should  be  given 
its  ordinary  and  usual  signification,  as  being  an  event  that  takes  place 
without  one's  foresight  or  expectation."  In  Carnes  v.  Association, 
106  Iowa,  281,  76  N.  W.  683,  68  Am.  St.  Rep.  306,  where  death 
resulted  from  taking  a  dose  of  morphine,  the  court  held  that,  if 
he  took  more  than  he  intended,  the  death  was  accidental,  but  that,  if 
he  took  the  exact  amount  intended,  and  misjudged  the  effect,  the 
death  was  not  accidental. 


ACCIDENTAL   INJURIES  445 

It  is  true  the  insured  knowingly  ate  the  oysters,  but  he  did  not 
know  that  he  was  eating  unsound  oysters.  The  effect  was  not  the 
natural  and  probable  consequence  of  eating  sound  oysters,  and  the 
effect  produced  by  the  eating  of  the  unsound  oysters  could  not  have 
been  reasonably  anticipated  or  foreseen  by  him.  It  was  unexpected, 
unforeseen,  and  unusual,  and  therefore  it  cannot  be  said  that  he 
voluntarily  ate  the  unsound  oysters.  This  being  true,  his  death  was 
caused  by  "accidental  means,"  as  that  term  is  used  in  the  policy. 

But  it  is  insisted  that,  as  the  oysters  were  "taken,"  the  company 
is  exempted  from  liability  under  the  terms  of  the  policy.  The  de- 
fendant, in  pleading  its  exemption  from  liability  by  reason  of  the 
claim  under  consideration,  alleged  that,  if  the  oysters  eaten  caused 
the  death,  it  was  because  they  contained  ptomaine  poison,  and  there- 
fore defendant  was  not  liable.  The  court  instructed  the  jury  that,  if 
the  oysters  contained  ptomaine  poison,  to  find  for  defendant.  The 
jury  found  against  this  theory,  and  the  evidence  supports  this  finding. 
To  avail  itself  of  the  exemption,  defendant  was  bound  to  plead  it 
and  the  facts  applicable  thereto,  and,  having  done  this,  its  defense 
will  be  confined  to  the  matter  pleaded,  and  it  will  not  be  heard  on 
the  contention  that  death  resulted  from  something  else  other  than 
poison  taken. 

If  it  should  be  conceded,  however,  that  our  position  on  this  proposi- 
tion is  not  sound — which  we  do  not  -we  are  still  of  the  opinion  that 
the  word  "anything"  as  used  in  the  language  "poison  or  anything 
accidentally  or  otherwise  taken,  administered,  absorbed,  or  inhaled," 
does  not  refer  to  eating  of  food  ordinarily  harmless,  not  knowing  it 
to  be  unsound  and  dangerous  in  that  condition.  It  must  be  inter- 
preted as  having  reference  to  those  agencies  which  are  not  strictly  de  • 
nominated  poison,  but  which  have  some  elements  of  poison,  antl  which 
may  produce  death  if  improperly  taken.  In  Kasten  v.  Interstate 
Casualty  Co.,  99  Wis.  73,  74  N.  W.  534,  40  L.  R.  A.  651,  where  a 
similar  clause  was  under  consideration,  the  court  say:  "While  the 
word  'poison,'  as  used  in  the  policy,  may  be  construed  to  mean  liquids 
commonly  knowm  as  poisons,  it  is  followed  by  the  words  'or  anything." 
which  clearly  indicates  that  the  intent  was  to  include  under  the  en 
tire  term  everything  of  a  poisonous  nature." 

The  evidence  in  this  case  showing  that  the  death  of  the  insured 
was  not  caused  by  the  taking  of  poison  or  anything  of  a  poisonous 
nature,  but  resulting  from  other  accidental  cause,  the  company  is 
not  exempt  from  liability.  Paul  v.  Insurance  Co.,  112  X.  Y.  472, 
20  N.  E.  347,  3  L.  R.  A.  443,  8  Am.  St.  Rep.  758 ;  Menneily  v.  As- 
surance Corporation,  148  N.  Y.  597,  43  N.  E.  54,  31  L.  R.  A.  686, 
51  Am.  St.  Rep.  716;  Association  v.  Thomas  (Ky.)  17  S.  W.  275; 
Association  v.  Alexander,  104  Ga.  709,  30  S.  E.  939,  42  L.  R.  A. 
188;  Association  v.  Sm.ith,  29  C.  C.  A.  223,  85  Fed.  401,  40  L.  R.  A. 
653;  Fidelity  &  Casualty  Co.  v.  Waterman,  161  111.  632,  44  N.  E. 
283,  32  E.  R.  A.  654;    Penfold  v.  Insurance  Co.,  85  N.  Y.  322,  39 


446  ACCIDENT   INSURANCE 

Am.  Rep.  660;    Ins.  Co.  v.  Dunlap,  160  111.  642,  43  N.  E.  765,  52 
Am.  St.  Rep.  355 ;    Pickett  v.  Ins.  Co.,  144  Pa.  79,  22  Atl.  871,  13 
L.  R.  A.  661,  27  Am.  St.  Rep.  618. 
The  judgment  is  affirmed.^ 


WESTERN   COMMERCIAL  TRAVELERS'  ASS'N  v.   SMITH. 

(Circuit  Court  of  Appeals  of  United   States,   Eiglith  Circuit,   1S9S.     85  Fed. 
401,  29  C.  C.  A.  223,  40  L.   R.  A.  653.) 

In  Error  to  the  Circuit  Court  of  the  United  States  for  the  Eastern 
District  of  Missouri. 

Before  Sanborn  and  Thayer,  Circuit  Judges,  and  Philips,  Dis- 
trict Judge. 

Sanborn^  Circuit  Judge.*  The  Western  Commercial  Travelers' 
Association,  the  plaintiff  in  error,  has  sued  out  a  writ  to  reverse  a 
judgment  against  it  upon  a  certificate  of  insurance  against  accident 
which  it  issued  to  Freeman  O.  Smith,  one  of  its  members,  for  the 
benefit  of  Sarah  I.  Smith,  the  defendant  in  error.  A  jury  was  waived, 
the  court  tried  the  case  and  made  a  special  finding  of  the  facts,  and 
the  error  assigned  is  that  the  facts  found  do  not  support  the  judg- 
ment (1)  because  they  show  that  immediate  notice  of  the  accident  or 
injury  was  not  given  to  the  association,  as  required  by  the  policy, 
and  (2)  because  they  fail  to  show  that  the  death  of  the  member  was 
produced  "by  bodily  injuries  effected  by  external,  violent,  and  acci- 
dental means."     *     *     * 

In  the  latter  part  of  August,  1895,  while  this  certificate  was  in 
force.  Freeman  O.  Smith,  who  was  a  strong  and  healthy  man,  com- 
menced wearing  a  pair  of  new  shoes.  About  September  6,  1895,  the 
friction  of  one  of  the  shoes  against  one  of  his  feet,  unexpectedly 
and  without  design  on  his  part,  produced  an  abrasion  of  the  skin  of 
one  of  his  toes.  He  gave  the  abrasion  reasonable  attention,  but  it 
nevertheless  caused  blood  poisoning  about  September  26,  1895,  which 
resulted  in  his  death  on  October  3,  1895.     *     *     * 

It  is  earnestly  contended,  however,  that  the  death  was  not  caused 
by  bodily  injuries  effected  by  external,  violent,  and  accidental  means 
(1)  because  the  disease  of  blood  poisoning  was  the  cause,  and  the 
abrasion  of  the  skin  of  the  toe  was  only  the  occasion,  the  locality  in 
which  the  disease  first  appeared,  and  (2)  because  the  abrasion  of  the 
skin  was  not  an  accident,  but  was  made  in  the  ordinary  course  of 
things.  The  contract  does  not  differ,  in  respect  to  the  subject  pre- 
sented by  this  proposition,  from  those  which  have  been  repeatedly 
considered  by  this  court,  and  we  state  its  legal  effect  briefly,  because 
the  reasons  and  authorities  in  support  of  our  views  here  have  been 

3  Rehearing  denied  March  21.  1903. 
*  Part  of  the  opinion  is  omitted. 


ACCIDENTAL    INJURIES  447 

frequently  set  forth  in  the  opinions  of  this  court  which  are  cited 
below. 

If  the  death  was  caused  by  disease,  w^ithout  any  bodily  injury  in- 
flicted by  external,  violent,  and  accidental  means,  as  in  the  case  of 
the  malignant  pustule  (Bacon  v.  Association,  123  N.  Y.  304,  25  N.  E. 
399,  9  L.  R.  A.  617,  20  Am.  St.  Rep.  748),  and  as  in  the  case  of 
sunstroke  (Sinclair  v.  Assurance  Co.,  3  El.  &  El.  478;  Dozier  v. 
Casualty  Co.  [C.  CI  46  Fed.  446,  13  L.  R.  A.  114),  the  association 
was  free  from  liability  by  the  express  terms  of  the  certificate.  If 
the  deceased  suffered  an  accident,  but  at  the  time  he  sustained  it  he 
was  already  suffering  from  a  disease  or  bodily  infirmity,  and  if  the 
accident  would  not  have  caused  his  death  if  he  had  not  been  affected 
by  the  disease  or  infirmity,  but  he  died  because  the  accident  aggra- 
vated the  disease,  or  the  disease  aggravated  the  effects  of  the  accident, 
as  in  the  case  of  the  insured  who  was  subject  to  such  a  bodily  infirm- 
ity that  a  short  run,  followed  by  stooping,  which  would  not  have  in- 
jured a  healthy  man,  produced  apoplexy  (Insurance  Co.  v.  Selden.  24 
C.  C.  A.  92,  78  Fed.  285),  the  association  was  exempt  from  liabilityr 
because  the  death  was  caused  partly  by  disease  and  partly  by  acci- 
dent. If  the  death  was  caused  by  bodily  injuries  effected  by  exter- 
nal, violent,  and  accidental  means  alone,  the  association  was  liable 
to  pay  the  promised  indemnity.  If  the  death  was  caused  b}^  a  dis- 
ease which  was  not  the  result  of  any  bodily  infirmity  or  disease  in 
existence  at  the  time  of  the  accident,  but  which  was  itself  caused 
by  the  external,  violent,  and  accidental  means  which  produced  the 
bodily  injury,  the  association  was  equally  liable  to  pay  the  indemnity. 
In  such  a  case,  the  disease  is  an  effect  of  the  accident,  the  incidental 
means  produced  and  used  by  the  original  moving  cause  to  bring  about 
its  fatal  effect,  a  mere  link  in  the  chain  of  causation  between  the  acci- 
dent and  the  death,  and  the  death  is  attributable,  not  to  the  disease. 
but  to  the  causa  causans,  to  the  accident  alone.  Insurance  Co.  v. 
Melick,  27  U.  S.  App.  547,  560,  561,  12  C.  C.  A.  544,  552,  and  65  Fed. 
178,  186;  Railway  Co.  v.  Callaghan,  12  U.  S.  App.  541,  550,  6  C.  C.  A. 
205,  210,  and  56  Fed.  988,  994;  Railway  Co.  v.  Kellogg,  94  U.  S. 
469,  475,  24  L.  Ed.  256;  Association  v.  Shryock,  36  U.  S.  App.  658, 
663,  20  C.  C.  A.  3,  5,  and  7Z  Fed.  774,  776. 

Now,  the  finding  of  the  facts  made  by  the  trial  court  is  conclu- 
sive in  this  case,  and  the  only  question  here  presented  is  whether 
those  facts  warrant  the  judgment  below.  That  court  has  found  that 
the  deceased  was  an  exceptionally  strong  and  healthy  man  when  the 
abrasion  in  question  was  produced.  It  has  found  that  the  wearing 
of  the  new  shoe  produced  the  abrasion  on  September  6,  1895,  that 
this  abrasion  was  the  cause  of  blood  poisoning  on  September  26,  1895, 
and  that  the  blood  poisoning  produced  the  death  on  October  3,  1895. 
The  question  whether  the  death  was  produced  by  the  abrasion  or  by 
the  disease  is,  therefore,  extracted  from  this  case.  There  is  no 
ground  for  the  contention  that  the  disease  of  blood  poisoning  was 


448  ACCIDENT  INSURANCE 

an  intervening  and  independent  cause  of  the  death,  because  the  find- 
ing of  the  court  below  is  that  that  disease  was  a  mere  link  in  the 
chain  of  causation  between  the  abrasion  which  produced  it  and  the 
death  which  it  produced. 

The  only  question  remaining,  therefore,  is  whether  or  not  the  abra- 
sion of  the  skin  of  the  toe  was  produced  by  accidental  means.  If 
it  was,  the  death  was  so  produced ;  and  if  it  was  not,  there  was 
no  accident,  and  consequently  no  cause  of  action.  The  contract  was 
that  the  association  would  pay  the  promised  indemnity  for  any  death 
caused  "by  bodily  injuries  effected  by  external,  violent,  and  accidental 
means."  There  is  no  claim  that  the  friction  of  the  shoe  which 
caused  the  abrasion  was  not  external  and  violent.  The  contention  is 
that  it  was  not  accidental.  The  significance  of  this  word  "accidental" 
is  best  perceived  by  a  consideration  of  the  relation  of  causes  to  their 
effects.  The  word  is  descriptive  of  means  which  produce  effects 
which  are  not  their  natural  and  probable  consequences.  The  natural 
consequence  of  means  used  is  the  consequence  which  ordinarily  fol- 
lows from  their  use, — the  result  which  may  be  reasonably  anticipated 
from  their  use,  and  which  ought  to  be  expected.  The  probable  con- 
sequence of  the  use  of  given  means  is  the  consequence  which  is  more 
likely  to  follow  from  their  use  than  it  is  to  fail  to  follow.  An  ef- 
fect which  is  the  natural  and  probable  consequence  of  an  act  or 
course  of  action  is  not  an  accident,  nor  is  it  produced  by  accidental 
means.  It  is  either  the  result  of  actual  design,  or  it  falls  under  the 
maxim  that  every  man  must  be  held  to  intend  the  natural  and  prob- 
able consequence  of  his  deeds.  On  the  other  hand,  an  efifect  which  is 
not  the  natural  or  probable  consequence  of  the  means  which  pro- 
duced it,  an  effect  which  does  not  ordinarily  follow  and  cannot  be 
reasonably  anticipated  from  the  use  of  those  means,  an  effect  which 
the  actor  did  not  intend  to  produce  and  which  he  cannot  be  charged 
with  the  design  of  producing  under  the  maxim  to  which  we  have  ad- 
verted, is  produced  by  accidental  means.  It  is  produced  by  means 
which  were  neither  designed  nor  calculated  to  cause  it.  Such  an  ef- 
fect is  not  the  result  of  design,  cannot  be  reasonably  anticipated,  is 
unexpected,  and  is  produced  by  an  unusual  combination  of  fortuitous 
circumstances ;  in  other  words,  it  is  produced  by  accidental  means. 
Railway  Co.  v.  Elliott,  12  U.  S.  App.  381,  386,  387,  389,  5  C.  C.  A. 
347,  350,  351,  353,  55  Fed.  949,  952,  953,  955. 

Was  the  abrasion  of  the  skin  of  the  toe  of  the  deceased  the  nat- 
ural and  probable  consequence  of  wearing  new  shoes?  It  must  be 
conceded  that  new  shoes  are  not  ordinarily  worn  with  the  design  of 
causing  abrasions  of  the  skin  of  the  feet,  and  the  trial  court  has 
found  that  the  abrasion  upon  the  toe  of  the  deceased  was  produced 
unexpectedly,  and  without  any  design  on  his  part  to  cause  it.  An 
abrasion  of  the  skin,  certainly,  is  not  the  probable  consequence  of 
the  use  of  new  shoes ;  for  it  cannot  be  said  to  follow  such  use  more 
frequently  than  it  fails  to  follow  it.     Nor  can  such  an  abrasion  be 


ACCIDENTAL   INJURIES  449 

said  to  be  the  natural  consequence  of  wearing  such  shoes, — the  con- 
sequence which  ordinarily  follows,  or  which  mic:ht  be  reasonably  antic- 
ipated. How,  then,  can  it  fail  to  be  the  chance  result  of  accidental 
means, — means  not  designed  or  calculated  to  produce  it?  If  the  de- 
ceased, without  design,  had  slipped,  and  caused  an  abrasion  of  his 
skin,  as  he  was  walking  down  the  street,  or  had  punctured  the  skin 
of  his  foot  by  stepping  on  a  nail  in  his  room,  or  had  pierced  it  with 
a  nail  in  his  shoe  as  he  was  drawing  it  upon  his  foot,  there  could 
have  been  no  doubt  that  these  injuries  were  produced  by  accidental 
means ;  and  it  is  difficult  to  understand  why  an  abrasion  of  the  skin, 
produced  unexpectedly  and  without  design,  by  friction  caused  by 
wearing  a  new  shoe,  does  not  fall  within  the  same  category. 

In  McCarthy  v.  Insurance  Co.,  8  Biss.  362,  Fed.  Cas.  No.  8,682, 
it  is  held  that  death  from  the  rupture  of  a  blood  vessel  caused  by 
swinging  Indian  clubs  for  exercise  may  be  a  death  from  bodily  in- 
jury caused  by  accidental  means.  In  Martin  v.  Insurance  Co.,  1 
Fost.  &  F.  505,  a  total  disability  caused  by  straining  the  back  while 
lifting  a  heavy  burden  was  declared  to  be  a  disability  produced  by 
accident.  In  Insurance  Co.  v.  Burroughs,  69  Pa.  43,  51,  8  Am.  Rep. 
212,  the  court  said  that  an  accident  is  "an  event  that  takes  place 
without  one's  foresight  or  expectation;  an  event  which  proceeds 
from  an  unknown  cause,  or  is  an  unusual  efifect  of  a  known  cause,  and 
therefore  not  expected  ;  chance  ;  casualty ;  contingency," — and  held 
that  a  strain  of  the  abdominal  muscles,  produced  by  pitching  hay, 
which  caused  an  inflammation  that  resulted  in  death,  was  an  accident. 
Death  by  drowning,  by  involuntarily  inhaling  illuminating  gas,  or  by 
fright  is  death  by  accidental  means.  Trew  v.  Assurance  Co.,  6  Hurl. 
&  N.  839;  Mallory  v.  Insurance  Co.,  47  N.  Y.  52,  7  Am.  Rep.  410; 
Paul  V.  Insurance  Co.,  112  N.  Y.  472,  20  N.  E.  347,  3  L.  R.  A. 
443,  8  Am.  St.  Rep.  758;  ^IcGlinchey  v.  Casualty  Co.,  80  Me.  251, 
14  Atl.  13,  6  Am.  St.  Rep.  190. 

In  Insurance  Co.  v.  Melick,  27  U.  S.  App.  547,  12  C.  C.  A.  544, 
and  65  Fed.  178,  this  court  affirmed  a  judgment  based  upon  a  verdict 
that  a  death  caused  by  lockjaw,  which  was  produced  by  a  shot  wound 
unexpectedly  inflicted  upon  himself  by  the  deceased,  without  design, 
was  a  death  caused  by  bodily  injury  produced  by  accidental  rriear^s 
alone.  In  Association  v.  Barry,  131  U.  S.  100,  9  Sup.  Ct.  755,  Zl 
L.  Ed.  60,  three  persons  jumped  from  the  same  platform  at  the 
same  time  and  place.  Two  of  them  alighted  in  safety,  while  the 
third  suffered  a  stricture  of  the  duodenum  which  produced  a  disease 
which  caused  his  death.  The  supreme  court  affirmed  a  judgment 
founded  upon  a  verdict  that  his  death  was  the  result  of  bodily  in- 
juries effected  through  external,  violent,  and  accidental  means,  and 
approved  an  instruction  to  the  jury  that:  "The  term  'accidental' 
was  used  in  the  policy  in  its  ordinary,  popular  sense,  as  meaning 
'happening  by  chance;  unexpectedly  taking  place;  not  according  to 
CooLEY  Ins. — 29 


450  ACCIDENT  INSURANCE 

the  usual  course  of  things ;  or  not  as  expected' ;  that,  if  a  result 
is  such  as  follows  from  ordinary  means,  voluntarily  employed,  in 
a  not  unusual  or  unexpected  way,  it  cannot  be  called  a  result  effected 
by  accidental  means ;  but  that  if,  in  the  act  which  precedes  the  in- 
jury, something  unforeseen,  unexpected,  unusual  occurs,  which  pro- 
duces the  injury,  then  the  injury  has  resulted  through  accidental 
means." 

We  are  unable  to  distinguish  the  case  at  bar  from  those  to  which 
we  have  referred,  and  the  case  last  cited  is  of  controlling  authority 
in  this  court.  The  abrasion  of  the  skin  of  the  toe  of  the  deceased 
was  unexpectedly  caused,  without  design  on  his  part,  by  unforeseen, 
unusual,  and  unexpected  friction  in  the  act  of  wearing  the  shoe  which 
preceded  the  injury.  It  was  not  the  natural  or  probable  consequence 
of  that  act,  and  it  was,  therefore,  produced  by  accidental  means. 

The  judgment  below  must  be  affirmed,  with  costs;  and  it  is  so 
ordered.^ 


II.  External  and  Visible  Signs  of  Injury 


UNION  CASUALTY  &  SURETY  CO.  v.  MONDY. 
(Court  of  Appeals  of  Colorado,  1903.     18  Colo.  App.  395,  71  Pac.  677.) 

Action  by  Bertha  Mondy  and  others  against  the  Union  Casualty  & 
Surety  Company.     Judgment  for  plaintiff's.     Defendant  appeals. 

GuNTER,  J.'^  *  *  *  The  complaint  alleges  that  insured,  in  dis- 
charging his  duties  as  porter  upon  a  sleeping  car,  was  accidentally 
struck  upon  the  head  by  the  falling  of  a  berth,  and  from  the  injuries 
so  sustained  died.     These  allegations  the  answer  denies.     *     *     * 

The  principal  fact  here  was  the  injured  condition  of  the  insured. 
There  was  evidence  of  this  other  than  his  declarations  made  to  the 
witnesses  Carter  and  Stafford.  He  was  a  sound,  healthy  man,  dis- 
charging his  duties  as  porter.  The  train  entering  the  town  of  Davis- 
ville  made  a  sudden,  violent,  and  unusual  stop,  the  jar  resulting  to 
passengers  from  the  stop  being  so  violent  as  to  alarm  them.  Im- 
mediately thereafter  insured  was  seen  standing  at  a  berth  partially 
made  down,  his  foot  upon  the  stepping  stool,  his  head  between  his 

5  Accord:  United  States  Mutual  Accident  Ass'n  v.  Barry.  131  U.  S.  100.  9 
Sup.  Ct.  755,  33  L.  Ed.  60  (1889) ;  French  v.  Fidelity  &  Casualty  Co.,  135  Wis. 
259,  115  N.  W.  869,  17  L.  R.  A.  (N.  S.)  1011  (1908).  For  a  discussion  of  the 
rule  as  to  proximate  and  remote  cause,  see,  also,  Cooley,  Briefs  on  tlie  Law 
of  Insurance,  \ol.  4,  p.  3175. 

6  For  discussion  of  principles,  see  Vance  on  Insurance,  §  234.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3184. 

7  Pai't  of  the  opinion  is  omitted. 


EXTERNAL   AND    VISIBLE    SIGNS    OF   INJURY  451 

hands,  and  in  great  pain.  He  continued  in  great  pain,  his  face  and 
complaints  showing  pain.  His  head  was  tied  up  with  a  wet  towel, 
and  in  his  suffering  he  was  put  to  bed  in  the  smoking  room.  This 
was  the  night  of  October  26th.  He  remained  in  bed  in  the  car,  sick 
and  suffering,  until  he  arrived  at  home  (Denver)  October  29th.  He 
there  went  to  bed,  called  a  physician,  and  remained  under  his  care 
until  death — November  11th.  An  autopsy  was  then  made,  showing 
a  congested  condition  of  the  brain  on  the  right  side,  and  that  from 
this  he  died.  He  was  found  to  have  been  a  strong,  healthy  man ; 
every  organ,  even  in  'leath,  was  healthy  and  in  good  condition.  There 
was  no  symptom  of  any  disease  from  which  the  congested  condition 
of  the  brain  could  arise.  Dr.  AIcNaught,  who  attended  the  insured 
continuously  after  his  arrival  in  Denver,  and  who  participated  in  the 
autopsy,  testified  that  the  probable  cause  of  the  congested  condition  of 
the  brain  was  an  injury.  These  facts  showed  that  insured  was  sud- 
denly changed  from  the  state  of  health  to  one  of  sickness  and  pain ; 
they  showed  the  principal  fact,  the  injured  condition  of  the  insured. 
*     *     * 

The  policy  provided :  "This  insurance  does  not  cover  *  *  * 
any  injury,  fatal  or  otherwise,  of  which  there  is  no  visible  mark  upon 
the  body."  Appellant  contends  that  there  w^as  no  evidence  of  a 
visible  mark  of  the  alleged  injury  upon  the  body  of  deceased.  The 
jury  in  effect  found  that  deceased  was  accidentally  struck  upon  the 
head  by  the  falling  of  an  upper  berth  of  a  sleeping  car,  and  that 
the  injury  so  produced  was  the  cause  of  his  death.  It  was  the  pur- 
pose of  defendant  in  issuing  this  policy,  and  the  purpose  of  deceased 
in  taking  it  out,  to  have  the  policy  cover  accidents  of  the  character 
of  the  one  here  involved.  The  purpose  of  the  provision  of  the  policy 
thus  cited  was  not  to  exclude  accidents  of  the  character  before  us, 
but  to  prevent  the  defendant  from  being  imposed  upon  by  fictitious 
accidents  claimed  to  be  within  the  policy.  If  the  accident  was  in- 
tended by  the  parties  to  be  within  the  policy,  such  a  strained  con- 
struction should  not  be  put  upon  it  as  to  exclude  the  accident  and 
defeat  the  intention  of  the  parties.  The  poHcy  of  the  courts  is  to 
give  a  liberal  construction  to  such  provisions  in  favor  of  the  insured. 
Travelers'  Ins.  Co.  v.  Murray,  16  Colo.  296,  305,  26  Pac.  774,  25 
Am.  St.  Rep.  267;  U.  S.  Mutual  Ace.  Ass'n  v.  Newman,  84  \'a.  52, 
59,  3  S.  E.  805. 

In  Mutual  Accident  Association  v.  Barry,  131  U.  S.  100,  111,  9 
Sup.  Ct.  755,  759,  33  h.  Ed.  60,  the  policy  provided  that  it  should 
not  extend  to  any  injury  of  which  there  was  no  external  and  visible 
sign.  The  trial  court,  in  charging,  said :  "It  is  true  there  must  be 
an  external  and  visible  sign  of  the  injury,  but  it  does  not  necessarily 
follow  from  that  that  the  injury  must  be  external.  That  is  not  the 
meaning  or  construction  of  the  certificate.  Such  an  interpretation  of 
the  contract  would,  in  the  opinion  of  the  court,  sacrifice  substance  to 
shadow,  and  convert  the  contract  itself  into  a  snare — an  instrument 


452  ACCIDENT  INSURANCE 

for  the  destruction  of  valuable  rights.  Visible  signs  of  injury,  within 
the  meaning  of  this  certificate,  are  not  to  be  confined  to  broken  limbs, 
or  bruises  on  the  surface  of  the  body.  There  may  be  other  external 
indications  or  evidence  which  are  visible  signs  of  internal  injury. 
Complaint  of  pain  is  not  a  visible  sign,  because  pain  you  cannot  see. 
Complaint  of  internal  soreness  is  not  such  a  sign,  for  that  you  cannot 
see,  but  if  the  internal  injury  produces,  for  example,  a  pale  and 
sickly  look  in  the  face,  if  it  causes  vomiting  or  retching,  or  bloody 
or  unnatural  discharges  from  the  bowels,  if,  in  short,  it  sends  forth 
to  the  observation  of  the  eye,  in  the  struggle  of  nature,  any  signs  of 
the  injury,  then  those  are  external  and  visible  signs,  provided  they 
are  the  direct  results  of  the  injury."  The  insured  sustained  duodenitis 
by  jumping  from  an  elevated  platform.  The  external  and  visible 
signs  of  bodily  injury  were  that  he  was  ill  immediately  after  the  in- 
jury, distressed  in  the  stomach,  vomited,  and  from  that  time  retained 
nothing  on  his  stomach,  passed  nothing  but  decomposed  bloody  mucus, 
and  died  nine  days  thereafter.  By  sustaining  the  recovery  below, 
the  upper  court  held  these  to  be  external  and  visible  signs  of  bodily 
injury. 

In  Pennington  v.  Pacific  Mutual  Life  Ins.  Co.,  85  Iowa,  468,  470, 
52  N.  W.  482,  483,  39  Am.  St.  Rep.  306,  plaintifif,  a  locomotive  fire- 
man, while  on  duty,  was  violently  and  accidentally  injured  by  the 
lurching  of  a  locomotive.  He  recovered  upon  an  accident  policy. 
This  provided :  "The  insurance  shall  not  cover  *  *  *  injuries  of 
which  there  is  no  visible,  external  mark  upon  the  body  of  the  in- 
sured." The  injury  sustained  was  a  strain.  It  was  contended  the 
accident  was  without  the  policy,  because  there  was  no  visible  mark 
of  the  injury  upon  the  body.  The  court  held:  "The  contract  does 
not  contemplate  that  there  must  be  bruises,  contusions,  or  lacerations 
on  the  body,  or  broken  limbs."  An  effect  of  the  strain  was  the 
disabled  condition  of  insured.  It  was  held  that  this  was  a  visible, 
external  mark  of  the  injury  upon  the  body  of  the  insured. 

In  Freeman  v.  Mercantile  Accident  Ass'n,  156  iNIass.  351,  30  N. 
E.  1013,  17  h.  R.  A.  753,  the  policy  provided  "that  benefit  under 
this  certificate  shall  not  extend  to  any  case  in  which  there  shall  be 
no  symptom  or  visible  sign  of  bodily  injury."  The  insured  died  of 
peritonitis,  localized  in  the  region  of  the  liver.  The  trial  court  was 
asked  by  the  defendant  to  charge  there  must  be  an  external  sign 
of  the  bodily  injury.  This  it  declined  to  do,  and  charged  that  if 
there  were  symptoms  or  signs  which  would  become  visible,  and  did 
become  visible,  upon  examination,  by  being  able  to  inspect  the  interior 
of  the  body,  it  would  be  sufficient  whether  that  examination  was  made 
before  or  after  death.    This  was  approved  by  the  upper  court. 

Thayer  v.  Standard  Life  and  Accident  Insurance  Company,  68  N. 
H.  577,  41  Atl.  182,  was  upon  an  accident  policy;  recovery  by  plain- 
tiff, the  facts  being:  Plaintiff's  shoulder  was  accidentally  injured  by 
a  fall,  causing  pain,  and  depriving  him  of  the  use  of  the  arm.     He 


POISON    OR    CONTACT   WITH    POISONOUS    SUBSTANCES  453 

was  disabled  thereby  from  attending  to  business.  The  policy  provided 
that  it  should  not  cover  "any  injury,  fatal  or  otherwise,  of  which 
there  is  no  visible  mark  upon  the  body."  Construing  this  provision, 
the  court  said:  "The  visible  mark  upon  the  body  required  by  the 
policy  need  not  be  a  bruise,  contusion,  laceration,  or  broken  limb,  but 
mav  be  any  visible  evidence  of  an  internal  strain  which  may  appear 
within  a  reasonable  time  after  the  injury  received." 

In  U.  S.  Mutual  Accident  Ass'n  v.  Newman,  84  Va.  52,  54.  62, 
3  S.  E.  805,  809,  the  policy  provided  "that  benefits  under  this  cer- 
tificate shall  not  extend  to  any  bodily  injury  of  which  there  shall  be 
no  external,  visible  sign  upon  the  body  of  the  insured."  Tt  was  held 
that  death  of  the  body  was  an  external  and  visible  sign  of  bodily 
injury  upon  the  body  of  the  insured. 

We  think  death  of  the  body  of  the  insured  was  a  visible  mark  of 
injury  upon  the  body,  within  the  meaning  of  the  policy.  Further, 
there  was  evidence  of  a  localized  redness  of  the  tissues  of  the  brain 
of  deceased  on  the  right  side  of  the  head.  This  was  not  revealed 
until  the  autopsy.  This,  we  think,  was  a  visible  mark  upon  the  body 
as  provided  in  the  policy.  The  terms  of  the  policy  did  not  require 
that  the  visible  mark  should  be  upon  the  surface  of  the  body.  *  *  * 
Affirmed. * 


III.  Poison  or  Contact  with  Poisonous  Substances  ' 


MARYLAND  CASUALTY  CO.  v.  HUDGINS. 
(Court  of  Civil  Appeals  of  Texas,  1903.     72  S.  W.  1047.) 
For  report  of  this  case,  see  ante,  p.  443. 

8  In  Horsfall  v.  Pacific  Mnt.  Life  Ins.  Co.,  32  Wash.  132.  72  Pac.  1028.  63 
L.  R.  A.  425.  98  Am.  St.  Rep.  846  (1903),  where  the  insured  was  injured  by 
strain  in  lifting  a  heavy  iron  bar.  it  was  said:  "It  is  also  urj-'ed  that  the 
injuries  causinir  death  left  no  visible  external  mark.  ♦  *  *  The  evidence 
shows  that  immediately  after  the  accident  the  deceased  became  deathly  pale 
and  sick,  his  hands  and  feet  became  cold,  and  the  perspiration  stood  out  on 
his  face  and  hands.  The  next  day  after  the  accident  his  skin,  which  pre- 
viously had  been  ruddy,  became  a  bluish  gray  color,  and  remained  so  until 
his  death.  These,  we  think,  were  visible  external  marks,  and  sutticient  to 
bring  the  case  within  the  terms  of  the  policy."  See,  also,  Menneilley  v.  Em- 
ployers' Liability  Assurance  Corp.,  post,  p.  696. 

9  For  discussion  of  principles,  see  Vance  on  Insurance,  §  237.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3193. 


454  ACCIDENT  INSURANCE 


IV.  Inhaling  Gas  ^"^ 


MENNEILLEY  v.  EMPLOYERS'  LIABILITY  ASSUR.  CORP. 

(Court  of  Appeals  of  New  York,  1896.     148  N.  Y.  596,  43  N.  E.  54,  31  L.  R. 

A.  686,  51  Am.  St.  Rep.  716.) 

Action  by  Mary  Menneilley  against  the  Employers'  Liability  As- 
surance Corporation,  Limited,  to  recover  on  a  policy.  From  an  order 
of  the  general  term  (72  Hun,  477,  25  N.  Y.  Supp.  230)  denying  plain- 
tiff's motion  for  judgment  in  her  favor,  ordered  by  the  trial  court 
subject  to  the  opinion  of  the  general  term,  and  dismissing  the  com- 
plaint, plaintiff  appeals. 

The  facts  in  this  case  were  agreed  upon  by  the  parties,  and  were 
as  follows:  "That  on  the  12th  day  of  October,  1891,  during  the 
continuance  of  the  said  policy  of  insurance,  Samuel  D.  W.  Menneilley, 
the  person  mentioned  in  the  complaint  as  the  person  insured  in  and 
by  said  policy  of  insurance,  died.  That  at  the  time  of  his  death  he 
was  stopping  as  a  guest  at  the  Millard  Hotel,  in  Omaha,  Neb.  That 
he  went  to  his  room  in  said  hotel  on  the  night  of  the  said  12th 
day  of  October,  1891,  and  at  some  time  after  he  went  to  his  room 
the  illuminating  gas  therein  accidentally  escaped  into  his  room.  That 
early  in  the  morning  of  the  13th  day  of  October,  1891,  the  said 
Menneilley  was  foimd  in  his  bed,  his  room  being  tightly  closed  on 
the  inside,  and  filled  with  such  illuminating  gas.  That  the  death  of 
said  Menneilley  was  occasioned  by  accidental  means,  and  arose  from 
and  was  caused  by  his  involuntarily  and  accidentally  breathing  into 
his  lungs  the  said  illuminating  gas,  which  had  so  accidentally  escaped 
into  such  room,  the  escape  of  said  gas  being  immediately  discover- 
able upon  entering  said  room,  in  consequence  of  which  inspiration  of 
said  gas  he  died  the  same  night  of  asphyxia.  That  the  accident  from 
which  said  Menneilley  died  caused  no  external  and  visible  marks, 
and  the  body  of  said  Menneilley  bore  no  external  and  visible  marks 
of  the  accident  on  account  of  which  he  died,  unless  the  facts  that 
illuminating  gas  emanated  from  his  body  when  artificial  respiration 
was  produced,  to  the  perception  of  the  person  producing  such  artificial 
respiration ;  that  the  room,  on  entering  the  same,  was  easily  per- 
ceived to  be  full  of  illuminating  gas,  and  that  the  gas  was  then  es- 
caping therein ;  and  that  inspection  of  the  body  showed  life  to  be 
extinct, — be  held  or  found  to  constitute  such  external  and  visible 
marks,  within  the  meaning  of  the  term  'external  and  visible  marks,' 
contained  in  the  policy.     The  defendant  does  not  admit  that  such 

10  For  discussion  of  principles,  see  Vance  on  Insui-ance,  §  238.  See,  also, 
CJooley,  Briefs  on  tbe  Law  of  Insurance,  vol.  4,  p.  3196. 


INHALING    GAS  455 

facts  constitute  'external  and  visible  marks,'  within  the  meaning  of 
the  term  'external  and  visible  marks,'  contained  in  the  policy.  The 
plaintiff  claims  that  they  do."^^     *     *     * 

Martin,  J.  This  action  is  upon  a  policy  or  contract  of  insurance 
issued  by  the  defendant  to  Samuel  D.  W.  Menneilley,  by  which,  in  case 
of  his  death  from  any  accident  within  the  provisions  of  the  policy, 
the  defendant  agreed,  within  three  months  thereafter,  to  pay  to  the 
plaintiff  the  sum  of  $5,000. 

The  conditions  contained  in  the  policy,  so  far  as  applicable  to  the 
questions  involved  in  this  case,  are  as  follows:  "This  policy  does 
not  insure  against  death  or  disablement  *  *  *  from  accidents 
that  shall  bear  no  external  and  visible  marks,  *  *  *  nor  against 
death  or  disablement  arising  from  anything  accidentally  taken,  ad- 
ministered, or  inhaled,  contact  of  poisonous  substances,  inhaling  gas, 
or  any  surgical  operation  or  exhaustion  consequent  thereon."  The 
general  term  held  that  the  clause  in  the  policy  which  provides  that 
it  does  not  insure  against  death  or  disablement  arising  from  anything 
accidentally  taken,  administered,  or  inhaled,  described  an  act  that  was 
not  voluntary  and  intelligent,  but  accidental,  and  that  the  admitted 
facts  bring  this  case  within  that  exception.  That  court  also  held  that 
the  facts  did  not  establish  a  case  within  the  exception  as  to  inhaling 
gas;  citing  the  decision  of  Paul  v.  Insurance  Co.,  112  X.  Y.  472,  20 
N.  E.  347,  3  L.  R.  A.  443,  8  Am.  St.  Rep.  758. 

Thus,  the  sole  ground  upon  which  judgment  was  directed  for  the 
defendant  was  that  it  was  not  liable  because  the  cause  of  the  death 
of  the  insured  was  within  the  exception  in  the  policy  as  to  death 
arising  from  anything  accidentally  taken,  administered,  or  inhaled. 
Moreover,  the  respondent  admits  that  in  this  state,  under  the  au- 
thority of  the  Paul  Case,  the  words  "inhaling  gas,"  contained  in  the 
policy,  when  read  in  the  light  of  the  context,  apply  only  to  cases 
where  gas  is  inhaled  intentionally,  voluntarily,  and  consciously,  and 
that  under  the  decision  in  that  case  the  judgment  of  the  general 
term  cannot  be  upheld  on  the  theory  that  that  provision  exempted 
the  defendant  from  liability  under  its  policy.  In  the  Paul  Case,  Judge 
Gray,  in  delivering  the  opinion  of  the  court,  said :  "But,  in  expressing 
its  intention  not  to  be  liable  for  death  'from  inhaling  of  gas,'  the  com- 
pany can  only  be  understood  to  mean  a  voluntary  and  intelligent  act 
by  the  insured,  and  not  an  involuntary  and  unconscious  act.  Read 
in  that  sense,  and  in  the  light  of  the  context,  these  words  must  be 
interpreted  as  having  reference  to  medical  or  surgical  treatment,  in 
which  ex  vi  termini,  would  be  included  the  dentist's  work,  or  to  a 
suicidal  purpose.  Of  course,  the  deceased  must  have,  in  a  certain 
sense,  inhaled  gas;  but,  in  view  of  the  finding  that  the  death  was 
caused  by  accidental  means,  the  proper  meaning  of  words  compels, 
as  does  the  logic  of  the  thing,  the  conclusion  that  there  was  not 

11  Statement  of  facts  is  abridged. 


456  ACCIDENT  INSURANCE 

that  voluntary  or  conscious  act  necessarily  involved  in  the  process  of 
inhaling."  In  that  case  it  was  distinctly  held  that  the  defendant  was 
not  exempt  from  liability  under  such  a  provision  where  the  death 
of  the  insured  was  caused  by  the  accidental  inhaling  of  illuminating 
gas. 

The  acts  in  that  case  were  so  nearly  like  those  in  the  case  at  bar 
that  no  distinction  between  them  exists.  The  Paul  Case  was  re- 
ferred to  in  Bacon  v.  Association,  123  N.  Y.  304,  308,  25  N.  E.  399, 
9  L.  R,  A.  617,  20  Am.  St.  Rep.  748,  and  its  doctrine  expressly  recog- 
nized as  correct.  It  was  also  followed  in  Pickett  v.  Insurance  Co., 
144  Pa.  St.  79,  91,  22  Atl.  871,  13  L.  R.  A.  661,  27  Am.  St.  Rep.  618. 
It  follows  that  the  judgment  appealed  from  cannot  be  sustained  upon 
the  ground  that  the  clause  in  the  policy  excepting  death  from  inhaling 
gas  from  its  provisions  exempts  the  defendant  from  liability  in  this 
case. 

The  respondent,  however,  urges  that  upon  the  admitted  facts  the 
general  term  properly  held  that  the  provision  with  reference  to  "any- 
thing accidentally  taken,  administered,  or  inhaled,"  exempted  the  com- 
pany from  any  liability  whatever  under  its  policy.  We  think  other- 
wise. That  provision  in  the  policy  clearly  implies  voluntary  action 
on  the  part  of  the  insured,  or  some  other  person.  The  insured  must 
take  or  inhale,  or  another  must  administer.  The  manifest  purpose  of 
the  provision  is  to  exempt  the  insurer  from  liability  where  the  in- 
sured has  voluntarily  and  consciously,  but  accidentally,  taken  or  in- 
haled, or  something  has  been  voluntarily  administered  which  was  in- 
jurious or  destructive  of  life.  We  think  that  the  particular  accidents 
intended  to  be  excepted  by  that  provision  are  the  accidental  taking 
or  inhaling  into  the  system  of  some  injurious  or  destructive  agency 
under  the  mistaken  belief  that  it  was  beneficial,  or,  at  least,  harmless. 
That  is  made  more  apparent  by  that  portion  of  the  provision  which 
relates  to  something  ''administered,"  as  it  cannot  be  reasonably  con- 
strued as  referring  to  a  thing  involuntarily  and  unconsciously  admin- 
istered. Indeed,  it  is  quite  difficult  to  understand  how  a  thing  could 
be  involuntarily  and  unconsciously  administered.  Coupled  together  as 
these  provisions  are,  the  same  rule  of  construction  must  be  applied  to 
that  portion  which  relates  to  something  accidentally  inhaled  as  ap- 
plies to  the  portion  which  relates  to  a  substance  accidentally  taken  or 
accidentally  administered.  All  the  cases  thus  provided  for  plainly  in- 
volve voluntary  and  conscious  action  on  the  part  of  the  insured,  or 
some  other  person.  The  leading  and  controlling  idea  in  this  provision 
is  the  performance  of  a  voluntary  act  which  accidentally  causes  the 
death  or  injury  of  the  insured. 

That  a  proper  construction  of  the  policy  requires  us  to  hold  that 
it  applies  only  to  cases  where  something  has  been  voluntarily  and  in- 
tentionally, although  mistakenly  taken,  administered,  or  inhaled,  there 
can,  we  think,  be  but  little  d(«ubt.  As  thus  construed,  this  provision, 
manifestly,  did  not  exempt  tne  defendant  from  liability  in  this  case. 


INHALING    GAS  457 

as  it  was  admitted  that  the  death  of  the  insured  was  occasioned  by 
accidental  means,  and  was  caused  by  involuntarily  and  accidentally 
breathings  illuminating  gas  which  had  escaped  into  the  room  where  he 
was  sleeping  at  the  time  of  his  death.  The  argument  that  the  pro- 
vision as  to  inhaling  gas  has  been  given  the  same  efifect  as  is  now 
given  to  the  other  and  more  general  one,  and  that  such  could  not  have 
been  their  purpose,  has  little  force.  The  inhaling  of  gas  having  been 
specially  provided  for  when  taken  for  surgical  and  like  purposes,  it 
is  only  when  it  is  inhaled  for  some  other  purpose,  or  under  other 
circumstances,  that  the  general  provision  applies.  The  special  pro- 
vision is  applicable  when  gas  is  inhaled  for  surgical  and  like  purposes. 
The  general  provision  applies  when  it  is  inhaled  for  other  purposes. 
Applying  to  the  construction  of  this  policy,  the  principles  stated  in 
the  opinion  in  the  Paul  Case,  it  is  obvious  that  the  construction  we 
have  placed  upon  the  policy  is  the  proper  and  correct  one. 

The  only  remaining  question  relates  to  the  provision  which  declares 
that  the  policy  "does  not  insure  against  death  or  disablement  *  *  * 
from  accidents  that  shall  bear  no  external  and  visible  marks."  It  is 
somewhat  diificult  to  understand  precisely  what  was  intended  by  this 
clause  of  the  policy.  We  are,  however,  of  the  opinion  that  the  lan- 
guage employed,  when  fairly  construed,  indicates  that  its  purpose  was 
to  provide  that  a  case  of  death  or  injury  should  not  be  regarded  as 
within  the  policy  unless  there  was  some  external  or  visible  evidence 
which  indicated  that  it  was  accidental ;  in  other  words,  that  only  such 
injury  as  could  be  shown  by  external  and  visible  evidence  to  have 
been  accidental  should  be  regarded  as  within  the  policy. 

In  this  case  it  is  admitted  that  the  decedent's  death  was  occasioned 
by  his  involuntarily  and  accidentally  breathing  illuminating  gas  which 
had  accidentally  escaped  into  his  room ;  that  there  were  no  visible 
marks  of  the  accident  upon  the  body  of  the  deceased,  but,  when  arti- 
ficial respiration  was  produced,  illuminating  gas  emanated  therefrom 
to  the  perception  of  the  person  producing  such  artificial  respiration ; 
that  upon  entering  the  room  it  was  perceived  to  be  full  of  gas,  and 
that  gas  was  then  escaping  therein  ;  and  that  an  inspection  of  the  body 
showed  life  to  be  extinct.  We  think  this  admission  furnishes  suffi- 
cient evidence  of  an  external  and  visible  character  that  the  death  of 
the  decedent  was  accidental  to  exclude  it  from  this  exception  in  the 
policy,  and  hence  that  it  was  one  of  the  accidents  against  which  the 
defendant  intended  to  insure.  The  respondent  discusses  this  question 
upon  the  theory  that  this  clause  in  the  policy  should  be  construed  as 
though  it  read,  "From  accident  where  there  shall  be  no  external  and 
visible  marks  upon  the  body  of  the  deceased."  A  fair  construction 
of  the  language  does  not,  we  think,  justify  the  conclusion  that  such 
was  its  intent  and  purpose,  but  that  the  more  reasonable  construction  is 
that  which  has  already  been  suggested. 

If  we  are  correct  in  these  conclusions,  it  follows  that  the  judgment 
of  the  general  term  should  be  reversed,  and  the  judgment  upon  the 


458  ACCIDENT  INSURANCE 

verdict  directed  for  the  plaintiff  should  be  affirmed,  with  costs  to  the 
plaintiff  in  all  the  courts.  All  concur,  except  Andrews,  C.  J.,  not 
voting,  and  Haight,  J.,  not  sitting.     Judgment  accordingly. 


V.  Voluntary  and  Unnecessary  Exposure  to  Injury  ^' 


DIDDLE  V.  CONTINENTAL  CASUALTY  CO. 

(Supreme  Court  of  Appeals  of  West  Virginia,  1909.     65  W.  Va.  170,  63  S.  E. 

962,  22  L.  R.  A.  [N.  S.]  779.) 

Action  by  Lydia  Diddle  against  the  Continental  Casualty  Company. 
Judgment  for  plaintiff,  and  defendant  brings  error. 

PoFFENBARGER,  J.^^  Thomas  D.  Diddle,  insured  for  the  benefit  of 
his  wife,  Lydia  Diddle,  in  the  Continental  Casualty  Company,  for  $2,- 
000,  was  struck  by  a  railway  water  column,  while  riding  on  a  railway 
engine,  and  killed.  His  wife  brought  this  action  on  the  policy  and  re- 
covered a  judgment  for  the  sum  of  $2,049.30.  The  defense  was  predi- 
cated on  a  limited  liability  clause  in  the  policy,  reading  as  follows : 
"Where  the  accident  or  injury  results  from  voluntary  exposure  to 
unnecessary  danger  or  obvious  risk  or  injury,  or  from  the  intentional 
act  of  the  insured  or  of  any  other  person ;  *  *  *  or  (2)  where 
the  accidental  injury  results  from  or  is  received  while  quarreling,  fight- 
ing or  violating  the  law ;  *  *  *  Then  and  in  all  cases  referred  to 
in  this  part  3,  the  amount  payable  shall  be  one-tenth  of  the  amount 
which  otherwise  would  be  payable  under  this  policy,  anything  in  this 
.policy  to  the  contrary  notwithstanding,  and  subject  otherwise  to  all 
the  conditions  in  this  policy  contained."  Deeming  this  clause  applica- 
ble and  controlling,  under  the  circumstances  attending  the  death  of 
the  assured,  the  insurance  company  tendered  the  beneficiary  $200,  one- 
tenth  of  the  amount  of  the  policy,  less  $20  due  it  on  account  of  un- 
paid premium,  which  she  refused. 

There  is  practically  no  controversy  as  to  the  facts.  The  main  ques- 
tion is  whether  the  court  can  say,  as  matter  of  law,  on  the  admitted 
or  established  facts,  the  death  of  the  insured  resulted  from  voluntary 
exposure  to  unnecessary  danger  or  obvious  risk  of  injury,  or  occurred 
while  he  was  violating  law,  and  this  is  raised  by  exceptions,  based  on 
the  giving  of  instructions  for  the  plaintiff,  refusal  of  instructions  re- 
quested by  the  defendant,  and  the  overruling  of  a  motion  to  direct 
a  verdict  for  the  defendant  and  a  motion  to  set  aside  the  verdict. 

12  For  discussion  of  principles,  see  Vance  on  Insurance,  §  240.  See,  also, 
•Cooley.  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3216. 

13  Part  of  the  opinion  is  omitted. 


VOLUNTARY    AND    UNNECESSARY    EXPOSURE   TO    INJURY  459 

The  following  facts  are  disclosed  by  the  evidence:  The  insured  was 
a  car  repairer  in  the  shops  of  the  Chesapeake  &  Ohio  Railway  Com- 
pany at  Huntington.  In  the  evening  of  the  day  he  was  killed,  after 
the  completion  of  his  work,  he  came  out  of  the  shop,  walked  down 
the  railway  track  in  a  westerly  direction  a  short  distance,  passing  the 
water  column,  standing  midway  between  two  railway  tracks,  about  nine 
feet  apart,  and  stepped  on  one  of  two, engines  drawing  a  train  of 
cars  over  a  switch  from  the  west-bound  track  to  the  east-bound  track, 
as  he  had  often  done  before.  Instead  of  getting  into  the  cab  of  the 
engine,  he  stood  on  a  step  on  the  outside,  holding  to  a  handgrip,  while 
his  body  projected  or  swung  from  the  side  of  it,  and  was  riding  in 
that  way,  or  he  was  in  the  act  of  climbing  into  the  cab,  and  before 
he  had  accomplished  it,  when  the  engine  came  to  the  water  column 
and  his  body  came  into  violent  contact  with  Jt.     *     *     * 

While  the  case  is  one  of  first  impression  in  this  state,  the  clause  in 
question  is,  and  has  been,  in  general  use  by  insurance  companies  for 
a  long  time,  and  its  construction  is  thoroughly  settled  by  numerous  de- 
cisions in  other  jurisdictions.    A  voluntary  exposure  to  necessary  dan- 
ger is  not  forbidden  by  it.     Keene  v.  New  England  Accident  Ass'n, 
161  Mass.  149,  36  N.  E.  891.    A  merely  inadvertent  and  unintentional 
exposure  to  a  known  danger,  under  peculiar  circumstances,  not  afford- 
ing opportunity  for  deliberate  action,  is  an  involuntary,  not  voluntary, 
exposure.     Keene  v.  Accident  Ass'n  cited ;   Casualty  Co.  v.  Chambers, 
93  Va.  138,  24  S.  E.  896,  40  L.  R.  A.  432 ;  Insurance  Co.  v.  Osborn,  90 
Ala.  201,  9  South.  869,  13  L.  R.  A.  267.    Exposure  to  an  unknown  dan- 
ger, though  a  voluntary  act,  is  not  a  voluntary  exposure.     Miller  v. 
Insurance  Co.,  92  Tenn.  167,  21  S.  W.  39,  20  L.  R.  A.  765 ;  Carpenter 
v.  Accident  Co.,  46  S.  C.  541,  24  S.  E.  500;  Johnson  v.  Accident  Co., 
115  Mich.  86,  72  N.  W.  1115,  40  L.  R.  A.  440,  69  Am.  St.  Rep.  549; 
Burkhard  v.  Insurance  Co.,  102  Pa.  262.  48  Am.  Rep.  205 ;    De  Loy 
V.  Insurance  Co.,  171  Pa.  1,  32  Atl.  1108,  50  Am.  St.  Rep.  787.    Ei- 
ther reckless  or  deliberate  encountering  of  known  danger,  or  danger 
so  obvious  that  a  reasonably  prudent  person  ought  to  have  known  it 
at  the  time  of  encountering  it,  is  universally  held  to  be  voluntary  ex- 
posure within  the  meaning  of  this  clause.    Garcelon  v.  Accident  Ass'n, 
195  Mass.  531,  81  N.  E.  201,  10  L.  R.  A.  (N.  S.)  961;    Willard  v. 
Accident  Ass'n,  169  Mass.  288,  47  N.  E.  1006,  61  Am.  St.  Rep.  285; 
Smith  V.  Insurance  Co..  185  Mass.  74,  69  N.  E.  1059,  64  L.  R.  A. 
117,  102  Am.  St.  Rep.  326;   Conboy  v.  Accident  Ass'n  (Ind.  App.)  43 
N.  E.  1017;   Insurance  Co.  v.  Jones,  80  Ga.  541,  7  S.  E.  83,  12  Am. 
St.  Rep.  270;   Tuttle  v.  Insurance  Co.,  134  Mass.  175,  45  Am.  Rep. 
316;    Rebman  v.  Insurance  Co..  217  Pa.  518,  66  Atl.  859,  10  L.  R. 
A.  (N.  S.)  957;   Alter  v.  Cas.  &  Sur.  Co.,  108  Mo.  App.  169,  83  S. 
W.  276;    Follis  v.  Accident  Ass'n,  94  Iowa,  435,  62  N.  W.  807,  28 
L.  R.  A.  78,  58  Am.  St.  Rep.  408;    Cornish  v.  Insurance  Co.,  23  L. 
R.  Q.  B.  D.  453. 


460  ACCIDENT  INSURANCE 

These  decisions  emphasize  the  duty  of  exercising  some  degree  of 
care  and  prudence,  in  view  of  obvious  danger,  even  though  the  in- 
sured did  not  at  the  moment  of  injury  reaHze  it,  or  was  not  actually 
conscious  of  it,  as  well  as  that  of  avoiding  known  danger  by  the 
exercise  of  prudence  and  care,  and  deny  to  the  beneficiary  of  the 
policy  the  right  to  take  the  opinion  of  the  jury  as  to  whether  the 
insured  was  actually  conscious  of  it,  at  the  moment  of  the  injury 
or  of  the  action  from  which  it  resulted.  They  proceed  upon  that 
principle  of  the  law  which  estops  a  man  from  saying  he  did  not  see 
or  hear  that  which  he  must  have  seen  or  heard,  if  he  had  given  his 
action  and  the  surrounding  circumstances  that  degree  of  attention 
which  prudence  and  a  due  regard  for  his  own  safety  and  the  rights 
of  others  require.  This  court  has  frequently  applied  it  in  neghgence 
cases.  Slaughter  v.  Huntington,  64  W.  Va.  237,  61  S.  E.  155,  16 
L.  R.  A.  (N.  S.)  459;  Riedel  v.  Traction  Co.,  63  W.  Va.  522,  61 
S.  E.  821,  16  L.  R.  A.  (N.  S.)  1123;  Van  Pelt  v.  Clarksburg,  42 
W.  Va.  218,  24  S.  E.  878;  Hesser  v.  Grafton,  33  W.  Va.  548,  11 
S.  E.  211 ;  Moore  v.  Huntington,  31  W.  Va.  849,  8  S.  E.  512;  Phillips 
V.  County  Court,  31  W.  Va.  480,  7  S.  E.  427. 

While  the  rights  of  the  parties  here  are  governed  by  the  contract, 
and  not  by  the  legal  rules  and  principles  of  the  law  of  negligence, 
there  are  certain  general  principles  common  to  many  branches  of 
the  law,  and  operative  in  the  determination  of  the  rights  of  parties, 
whether  they  arise  ex  contractu  or  ex  delicto.  Though,  perchance, 
the  insured  may  recover  on  a  policy  of  this  kind,  when  the  cir- 
cumstances would  deny  relief  under  the  law  of  negligence,  since  thi- 
clause  does  not  contemplate  such  exposure  as  is  incident  to  the  ordi- 
nary habits  and  customs  of  life  (Accident  Ind.  Co.  v.  Dorgan,  58 
Fed.  945,  7  C.  C.  A.  581,  22  E.  R.  A.  620),  it  is  nevertheless  well 
settled  that  he  must  exercise  at  least  ordinary  care,  and  failure  to 
do  so  is  negligence  in  a  case,  determined  by  the  law  of  negligence. 

]\Iany  of  the  decisions  assert  that  knowledge  of  the  danger  and  con- 
sciousness of  peril  on  the  part  of  the  insured  are  requisites  to  the 
application  of  this  clause,  but  they  were  rendered  in  cases  in  which 
he  was  in  fact  ignorant  thereof,  and  the  danger  was  not  so  obvious 
as  to  invoke  the  rule  of  duty  to  know  that  which  was  not  actually 
known,  and  it  was  neither  mentioned  nor  discussed.  It  is  believed 
that,  in  all  those  cases  in  which  the  danger  was  obvious,  and  there 
was  opportunity  for  deliberation,  not  instances  of  sudden  peril,  pre- 
cluding volition  or  producing  momentary  confusion  of  thought,  the 
courts  have  uniformly  held  the  insured  bound  to  know  it  and  treated 
him  as  if  his  knowledge  thereof  had  been  admitted  or  uncontroverted. 
There  are  cases,  however,  which  have  been  excluded  from  the  opera- 
tion of  the  clause,  apparently  upon  another  principle,  recognized  in 
the  law  of  negligence,  which  excuses  conduct  that  would  amount  to 
neo-ligence  but  for  the  suddenness  with  which  the  party  was  con- 
fronted with  danger,  rendering  it  uncertain  as  to  whether  the   act 


VOLUNTARY   AND   UNNECESSARY    EXPOSURE   TO    INJURY  461 

•was  voluntary  or  deliberate.  They  go  to  the  jury  for  the  determina- 
tion of  the  disputed  question  of  fact,  namely,  whether  the  act  was 
voluntary. 

We  think  Fid.  &  Cas.  Co.  v.  Chambers,  93  Va.  138,  24  S.  E.  896, 
40  L.  R.  A.  432,  relied  upon  in  the  brief  for  defendant  in  error 
as  being  directly  in  point  and  controlling,  belongs  to  this  class.  It 
is  akin  to  our  negligence  case  of  Mannon  v.  Railway  Co.,  56  W. 
Va.  554,  49  S.  E.  450.  There  was  neither  immediate  nor  apparent 
danger  when  the  insured  sat  down  upon  the  railroad,  but  suddenly 
a  train  came  around  a  curve  at  full  speed,  and,  in  his  confusion,  he 
attempted  to  secure  the  bag  he  had  laid  on  or  near  the  track,  and 
so  subjected  himself  to  the  injury.  It  was  a  sudden  emergency,  and 
the  immediate  or  proximate  cause  of  injury  was  probably  an  in- 
voluntary act.  Another  case,  so  invoked,  is  governed  by  the  same 
general  principle,  but  dififers  from  the  Chambers  Case  in  the  circum- 
stances and  cause  of  involuntary  action.  The  insured  ran  toward  a 
moving  train,  without  any  intention  of  boarding  it  or  coming  into 
contact  with  it.  By  a  mere  mistake  of  judgment,  he  ran  closer  than 
he  should  have  done.  In  attempting  to  stop  he  stumbled  and  fell 
against  the  engine.  His  falling  was  an  accident  and  purely  an  in- 
voluntary act. 

Applying  these  principles  to  the  undisputed  facts  disclosed  by  the 
•evidence,  we  conclude  that,  as  matter  of  law,  there  was  a  voluntary 
exposure  to  obvious  risk  on  the  part  of  the  insured.  He  must  have 
known  the  location  of  the  standpipe  or  water  column  and  its  prox- 
imity to  the  railway  track.  He  had  passed  it  frequently,  and  did 
so  just  before  the  accident.  The  danger  in  his  attempt  to  climb  on 
an  engine,  approaching  thi^  structure  at  the  rate  of  8  or  10  miles  an 
hour,  and  at  a  distance  of  only  60  or  75  feet  from  it,  was  so  baldly 
apparent  that  he,  if  living,  could  not  be  excused  on  the  ground  that 
he  did  not  see  it  or  was  not  conscious  of  it.  Nothing  in  his  situation 
or  the  circumstances  precluded  deliberate  action,  and  he  was  there- 
fore bound  to  avail  himself  of  the  reasonable  use  of  his  faculties  and 
such  judgment  as  an  ordinarily  prudent  man  would  have  exercised. 
The  fact  that  others  did  the  same  thing  or  similar  acts,  or  that  he 
had  previously  done  it  without  injury,  does  not  alter  the  case.  Garce- 
lon  V.  Accident  Ass'n,  195  Mass.  531,  81  N.  E.  201,  10  L.  R.  A.  (X. 
S.)  961 ;  Insurance  Co.  v.  Seaver,  19  Wall.  531.  22  L.  Ed.  155.  The 
beneficiary  of  the  policy  occupies  no  higher  position  in  law  than  he 
would  hold  if  living. 

We  are  unable  to  accept  the  view  that  the  other  clause  in  the 
policy  here  quoted,  limiting  the  liability  when  accidental  injury  re- 
sults from  or  is  received  while  quarreling,  fighting,  or  violating  the 
law  precludes  a  recovery  of  the  full  amount  of  the  policy.  The 
mere  jumping  on  or  off  of  a  car  or  train  is  not  made  a  misde- 
meanor by  chapter  145,  §  31a  (sec.  42^2)  Code  1906.  A  passenger 
or   employe   may   lawfully   do   this.      The    statute   is    aimed    at   tres- 


462  ACCIDENT  INSURANCE 

passers.  It  is  penal  and  ought  to  be  strictly  construed.  Passengers 
and  employes  are  expressly  excepted,  because  they  are  on  the  prem- 
ises by  invitation  of  the  railroad  company,  and  have  right  and  fre- 
quent occasion  to  board  trains.  The  insured  in  this  case  was  an 
employe  of  the  railroad  company  whose  engine  he  attempted  to  board, 
and  his  act  was  therefore  expressly  excepted  by  the  statute,  pro- 
vided he  was  such  an  employe  as  is  within  the  exception.  The 
statute  does  not  classify  either  employes  or  trains.  The  terms  of 
the  exception  are  general.  In  any  attempt  to  limit  it  to  employes 
of  any  class  or  department,  or  to  exclude  sectionmen,  shop  employes, 
or  others  whose  duties  do  not  require  them  to  go  on  board  the  trains 
or  engines,  or  passengers  boarding  other  than  passenger  trains,  the 
courts  would  apply  the  rule  of  liberal  construction  to  a  penal  statute 
in  violation  of  a  universally  recognized  principle.  Reeves  v.  Ross, 
62  W.  Va.  7,  57  S.  E.  284;  Hall  v.  N.  &  W.  R.  Co.,  44  W.  Va.  36, 
28  S.  E.  754,  41  L.  R.  A.  669,  67  Am.  St.  Rep.  757;  Shumate  v. 
Com.,  15  Grat.  (Va.)  653;  Yancey  v.  Hopkins,  1  Munf.  (Va.)  419;. 
Lewis,  Suth.  Stat.  Con.  §  526  et  seq.     *     *     *     Reversed. 


VI.  Occupation  and  Employment  ^* 


UNION  MUT.  ACC.  ASS'N  v.  FROHARD. 

(Supreme  Court  of  Illinois,  1890.     134  111.  22.8.  25  N.  E.  642,  10  L.  R.  A.  383,. 

23  Am.  St.  Rep.  664.) 

Baker,  J.^^  On  the  1st  day  of  September,  1885,  one  John  Erohard 
was  accepted  as  a  member  of  the  Union  Mutual  Accident  Association, 
and  a  certificate  of  insurance  was  issued  to  him.  On  January  26, 
1887,  while  hunting  with  a  gun,  he  accidentally  shot  and  killed  him- 
self. The  appellee,  Minna  Frohard,  who  is  his  widow,  and  the  ben- 
eficiary named  in  the  certificate,  filed  this  bill  in  equity  against  the 
corporation,  for  the  purpose  of  compelling  it  to  levy  an  assessment 
of  $2  for  each  member  of  the  association  liable  at  the  date  of  the 
accident,  for  the  purpose  of  paying  the  amount  of  $5,000,  specified 
in  the  certificate,  or  such  part  thereof  as  might  be  collected  on  the  as- 
sessment.    *     *     * 

Section  2  of  article  10  of  the  by-laws  of  appellant  is  as  follows : 
"Sec.  2.  Any  member,  who  shall  change  his  occupation  to  any  other 

14  For  discussion  of  principles,  see  Vance  on  Insurance,  §  242.  See,  also,. 
Cooley.  Briefs  on  tbe  Law  of  Insurance,  vol.  3,  p.  2205. 

15  Part  of  the  opinion  is  omitted. 


OCCUPATION    AND    EMPLOYMENT  463 

more  Hazardous  than  the  one  in  which  he  was  classified  when  insured, 
shall  immediately  notify  the  secretary  of  such  change;  and  any  mem- 
ber, receiving-  an  injury  wdiile  engaged  temporarily,  or  otherwise,  in 
another  occupation  more  hazardous  than  the  one  in  which  he  was  en- 
gaged when  insured,  he,  or  his  beneficiary,  shall  be  entitled  to  receive 
only  such  indemnity  as  provided  for  in  the  class  or  occupation  in 
which  he  is  engaged  at  the  time  of  the  injury;  and  such  shall  be 
payment  in  full  upon  the  part  of  the  company." 

Article  14  of  the  by-laws  classified  certificates  of  insurance  against 
accidents,  and  placed  them  in  six  divisions,  designated,  respectively,  as 
"A,"  "B,"  "C,"  "D,"  "E,"  and  "F."  This  classification  purported  to 
be  and  was  solely  upon  the  basis  of  occupations,  the  least  hazardous 
occupations  being  placed  in  division  A,  the  extrahazardous  occupa- 
tions in  division  F,  and  other  occupations  in  one  or  another  of  the  in- 
termediate divisions.  It  was  provided  in  said  article  that,  in  the  event 
of  the  death  by  accident  of  a  member  in  division  A,  a  sum  not  ex- 
ceeding $5,000  should  be  paid,  and  that  in  the  event  of  such  death  of 
a  member  of  division  E,  which  was  designated  therein  as  "hazardous," 
a  sum  not  exceeding  $1,000  should  be  paid.  Merchants  were  placed 
in  division  A,  and  hunters  in  division  E.     *     *     * 

The  certificate  or  policy  of  insurance  which  was  issued  to  John 
Frohard  provided,  among  other  things,  as  follows :  "That  John  Fro- 
hard,  by  occupation,  profession,  or  employment,  a  merchant,  residing 
at  Sparta,  state  of  Illinois,  is  accepted  as  a  member  in  division  A 
of  said  association,  subject  to  all  the  requirements,  and  entitled  to 
all  the  benefits,  thereof,  as  provided  in  the  by-laws,  and  that  said  mem- 
ber, in  case  of  death  occurring  through  external,  violent,  and  acci- 
dental injuries,  is  entitled  to  participate  in  the  mortuary  or  relief  fund 
of  the  association,  not  to  exceed  the  amount  of  $5,000,  which  sum.  or 
such  a  part  thereof  as  may  be  collected  for  that  purpose  by  the  pay- 
ment of  one  regular  assessment  of  two  dollars  ($2)  for  each  member 
of  the  association,  liable  at  the  date  of  the  accident,  shall  within  sixty 
(60)  days  after  sufficient  proofs  have  been  received,  be  paid  to  his 
wife,  Minna,  if  surviving.  *  *  '■'  It  is  expressly  stipulated  and 
agreed  that  in  the  event  of  the  member  being  either  fatally  injured, 
or  otherwise  disabled,  while  engaged  temporarily,  or  otherwise,  in  any 
act  or  occupation  classed  as  more  hazardous  than  the  one  in  which 
he  is  accepted,  according  to  the  classification  given  by  the  rates  and  by- 
laws of  this  association,  (or  if  not  specially  mentioned,  approximating 
thereto,)  then  an  amount  shall  be  paid  equal  to  the  rate  of  the  occu- 
pation in  which  the  member  is  engaged  when  receiving  the  injury. 
and  such  amount  shall  be  payment  in  full  upon  the  part  of  the  as- 
sociation. *  *  *  It  is  expressly  stipulated  and  agreed  that  this 
certificate  is  issued  and  accepted,  subject  to  all  the  provisions,  condi- 
tions, limitations,  and  exceptions  herein  contained,  or  referred  to." 

The  principal  contention  of  appellant  is  that  the  deceased  v^as  killed 


464  ACCIDENT  INSURANCE 

while  engaged  temporarily  in  an  act  or  occupation  classed  as  more 
hazardous  than  the  one  in  which  he  was  accepted,  and  that  appellee 
is  therefore  entitled  to  recover  only  the  amount  provided  for  such 
hazardous  risk  and  occupation.  The  contention  of  appellee  is  that 
there  was  no  change  of  occupation,  within  the  meaning  of  the  by- 
laws and  certificate  of  insurance.  The  deceased  was  a  hardware  mer- 
chant. He  did  not  follow  the  occupation  of  a  hunter  for  hire  or 
profit.  He  was  killed  while  engaged  in  the  act  of  hunting  as  a  recrea- 
tion, and  it  does  not  appear  that  he  had  hunted  with  a  gun  on  any 
occasion  since  the  issuance  of  the  policy  other  than  that  upon  which 
the  accident  occurred. 

In  our  examination  of  the  provisions  of  the  by-laws  and  contract 
of  insurance,  we  will  first  ascertain  the  proper  construction  to  be 
placed  upon  the  former.  The  language  of  section  2,  as  we  have  here- 
tofore seen,  is:  Any  member  receiving  an  injury  while  engaged  tem- 
porarily, or  otherwise,  in  an  occupation  more  hazardous  than  the  one 
in  which  he  was  engaged  when  insured,"  etc.  "Occupation"  is  defined 
by  lexicographers  to  mean  "that  which  occupies  or  engages  the  time 
or  attention ;  the  principal  business  of  one's  life ;  vocation ;  employ- 
ment; calling;  trade."  The  classification  of  hazards  in  article  14  of 
the  by-laws  is  made  upon  the  basis  of  occupations.  ^Merchants,  and 
those  following  other  like  vocations,  are  placed  in  division  A;  grain 
measurers  and  others  in  division  B ;  paper-hangers  and  others  in  di- 
vision C ;  teamsters  and  others  in  division  D ;  and  boatmen  and  others 
in  division  E.  The  by-laws  in  question  must  receive  a  reasonable 
construction.  It  would  be  unreasonable  and  absurd  to  hold  that  the 
merchant,  who  at  one  time  measured  a  few  bushels  of  grain,  at  an- 
other hung  a  few  rolls  of  wall  paper  upon  his  own  premises,  at  an- 
other drove  a  team  of  horses  in  a  carriage  or  wagon,  and  at  still 
another  rowed  a  skifif  for  exercise  or  recreation,  became,  within  the 
true  intent  and  meaning  of  these  by-laws,  at  these  several  times,  a 
grain  measurer,  a  paper  hanger,  a  teamster,  and  a  boatman,  respec- 
tively. 

The  word  "occupation,"  as  found  in  these  by-laws,  must  be  held 
to  have  reference  to  the  vocation,  profession,  trade,  or  calling,  which 
the  assured  is  engaged  in  for  hire,  or  for  profit,  and  not  as  precluding 
him  from  the  performance  of  acts  and  duties  which  are  simply  in- 
cidents connected  with  the  daily  life  of  men  in  any  or  all  occupations ; 
or  from  engaging  in  mere  acts  of  exercise,  diversion,  or  recreation. 
This  view  is  not  subversive  of  the  word  "temporarily"  found  in  said 
section  2,  for  there  would  be  full  opportunity  for  giving  force  and 
effect  to  it,  in  the  event  that  a  professional  man,  merchant,  or  person 
in  some  other  calling,  should  temporarily  abandon  such  vocation,  and 
for  purposes  of  profit,  or  as  a  means  of  gaining  a  subsistence,  tem- 
porarily employ  himself  in  some  more  hazardous  occupation. 

This  construction  of  these  by-laws  seems  to  be  sustained  by  the 


OCCUPATION    AND    EMPLOYMENT  465 

authorities.  In  Insurance  Co.  v.  Burroughs,  69  Pa.  43,  8  Am.  Rep. 
212,  there  were  conditions  in  respect  to  the  matter  of  a  change  of 
occupation,  and  the  deceased  was  insured  as  an  earthenware  manu- 
facturer, and  he  received  a  fatal  injury  from  an  accident  which  hap- 
pened while  he  was  assisting  in  hauling  hay  on  a  farm,  while  he  was 
on  a  visit  to  his  grandfather;  and  it  was  held  there  was  no  change  of 
occupation  or  business,  within  the  meaning  of  the  policy  there  in- 
volved. In  Stone's  Adm'rs  v.  Casualty  Co.,  34  N.  J.  Law,  375,  the 
language  of  the  condition  was:  "Policyholders,  insured  under  the 
preferred  class,  will  not  be  entitled  to  recover  for  injuries  received 
in  any  employment,  or  by  any  exposure,  either  more  hazardous  in 
itself,  or  classified  by  the  company  as  more  hazardous,  than  the  oc- 
cupations named  in  the  preferred  class."  The  deceased  was  insured 
as  a  teacher,  but,  while  overlooking  the  construction  of  a  building  he 
was  having  erected,  fell  from  a  second  story,  and  was  killed ;  and  it 
was  held  the  language  of  the  condition  had  respect  to  employments,  and 
not  to  individual  acts.  See,  also,  Miller  v.  Insurance  Co.,  39  Minn. 
548,  40  N.  W.  839. 

It  is  urged,  however,  that  the  contract  of  insurance  contains  the 
words,  "in  any  act  or  occupation,"  instead  of  the  mere  words,  "in 
another  occupation,"  found  in  the  by-law,  and  that  the  words,  "while 
engaged  temporarily,  or  otherwise,  in  an  act,"  cannot  be  ignored ;  but 
that  they  have  a  definite  and  clear  meaning,  and  must  be  given  legal 
force  and  efifect.  It  is  to  be  noted  that  the  words  used  in  the  con- 
tract are  words  selected  and  used  by  the  corporation  itself,  and  are 
therefore  to  be  interpreted  most  strongly  against  it;  or  that,  at  all 
events,  they  are  to  be  construed  according  to  their  common  and  lit- 
eral meaning  in  favor  of  the  insured.  The  provision  of  the  policy, 
upon  which  is  based  the  claim  that  the  demand  of  appellee  is  reduced 
from  one  under  division  A  to  one  under  division  E,  is  not  simply  that 
if  deceased  was  fatally  injured  "while  engaged  temporarily,  or  other- 
wise, in  any  act  or  occupation  more  hazardous  than  the  one  in  which 
he  was  accepted,"  but  contains  the  further  requirement  that  the  "act 
or  occupation"  that  will  be  effective  to  work  such  reduction  must  be 
one  that  is  "classed  as  more  hazardous,  *  *  *  according  to  the 
classification  given  by  the  rates  and  by-laws  of  the  association."  These 
words  last  quoted  are  words  of  limitation,  pertaining  to,  and  qualify- 
ing, the  terms,  "any  act,"  and  "occupation,"  as  used  in  the  contract. 
We  have  already  seen  that  the  classification  of  hazards  made  in  the 
by-laws  is  predicated  only  upon  occupations.  There  is  not  in  the  by- 
laws, or  in  the  record,  any  classification  of  hazards  in  respect  to 
acts.  In  other  words,  there  is  no  act  which  is  classified  as  more  or 
less  hazardous  than  another,  and  no  act  which  is  classed  as  more 
hazardous  than  the  occupation  designated  in  the  certificate  of  insur- 
ance issued  to  the  deceased. 
CooLEY  Ins. — 30 


466  ACCIDENT  INSURANCE 

The  case,  then,  does  not  stand  otherwise  than  it  would  if  the  word 
"act"  were  not  found  in  the  contract.  The  courts  below  properly  held 
that  the  claim  of  appellee  was  under  division  A,  and  was  for  $5,000. 
*     *     *     Affirmed.  . 


VII.  Liability  of  the  Insurer— Total  Disability  ^^ 


LOBDILIv  V.  LABORING  MEN'S  MUT.  AID  ASS'N  OF  CHAT- 
FIELD,  MINN. 

(Supreme  Court  of  Minnesota,  1897.     69  Minn.  14,  71  N.  W.  696,  38  L.  R.  A. 

537,   65  Am.    St.   Rep.   542.) 

Action  by  S.  C.  Lobdill  against  the  Laboring  :\Ien's  Mutual  Aid 
Association  of  Chatfield,  Minn.  Verdict  for  plaintiff.  From  an  or- 
der refusing  a  new  trial,  defendant  appeals. 

Mitchell,  J.  The  defendant,  an  accident  insurance  company,  is- 
sued its  policy  to  plaintifif,  w^hereby  it  insured  him  as  a  merchant  by 
occupation,  under  classification  preferred,  "in  the  sum  of  $25  per  week, 
against  loss  of  time  not  exceeding  twenty-six  consecutive  weeks,  re- 
sulting from  bodily  injuries  effected  through  means  aforesaid  [exter- 
nal, violent,  and  accidental]  ivholly  and  continuously  disabling  said 
member  from  transacting  any  and  every  kind  of  business  pertaining 
to  the  occupation  above  stated." 

Plaintiff  alleged  that  on  May  21,  1895,  and  during  the  life  of  the 
policy,  he  was  accidentally  thrown  from  his  bicycle,  and  violently 
thrown  forward  on  his  face,  thereby  dislocating  the  thumb  of  his 
right  hand,  breaking  loose  some  of  his  teeth,  and  so  injuring  or  jar- 
ring his  head  and  neck  as  to  affect  his  spine  and  nerves  to  such  an 
extent  as  to  produce  severe  nervous  prostration,  by  reason  of  which 
injuries  he  was  wholly  and  continuously  disabled  from  transacting 
any  and  every  kind  of  business  pertaining  to  his  occupation  as  a  mer- 
chant for  17  weeks.  The  principal  contest  is  as  to  the  construction 
of  that  part  of  the  policy  which  we  have  italicized,  and  particularly 
of  the  term  "wholly  disabled." 

Accident  insurance  being  of  comparatively  recent  origin,  the  policies 
do  not  seem  to  have  acquired  any  settled  form,  and  the  decisions  con- 
struing them  are  comparatively  few,  and  do  not  seem  to  have  agreed 
on  any  very  definite  meaning  to  be  given  to  the  term  "total  disability." 
Such  authorities  as  there  are  wull  be  found  quite  fully  cited  in  Bac. 
Ben.  Soc.  §  501,  and  in  Nibl.  Mut.  Ben.  Soc.  §  401  et  seq.  See,  also, 
4  Harv.  Law  Rev.  p.  180. 

16  For  discussion  of  principles,  see  Vance  on  Insurance,  §  244.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  pp.  3287,  3312. 


LIABILITY   OF   THE   INSURER — TOTAL    DISABILITY  467 

The  cases  which  have  placed  a  construction  upon  the  term  "total 
disability"  might  seem  to  be  divided  into  two  classes,  viz.  those  which 
construe  it  liberally  in  favor  of  the  insured,  and  those  which  construe 
it  strictly  against  him.  Among  those  of  the  first  class  may  be  cited 
Hooper  v.  Insurance  Co.,  5  Hurl.  &  N.  545,  556 ;  Young  v.  Insurance 
Co.,  80  Me.  244,  13  Atl.  896;  Turner  v.  Casualty  Co.,  112  Mich.  425, 
70  N.  W.  898,  38  L.  R.  A.  529,  67  Am.  St.  Rep.  428;  and  of  the 
second  class,  Lyon  v.  Assurance  Co.,  46  Iowa,  631,  and  Saveland  v. 
Casualty  Co.,  67  Wis.  174,  30  N.  W.  237,  58  Am.  Rep.  863.  Any 
apparent  conflict  in  the  decisions,  may,  however,  be  mostly  reconciled 
in  view  of  diflferences  in  the  language  of  the  policies,  and  of  the  dif- 
ferent occupations  under  which  the  parties  were  insured.  As  is  well 
said  in  Wolcott  v.  Association,  55  Hun,  98,  8  N.  Y.  Supp.  ,263:  "Total 
disability  must,  of  the  necessity  of  the  case,  be  a  relative  term,  and 
must  depend  largely  upon  the  occupation  of  the  party  insured." 

One  who  labors  with  his  hands  might  be  so  disabled  by  a  severe 
injury  to  one  hand  as  not  to  be  able  to  labor  at  all  at  his  usual  oc- 
cupation, whereas  a  merchant  or  a  professional  man  might  by  the 
same  injury  be  only  disabled  from  transacting  some  kinds  of  business 
pertaining  to  his  occupation.  In  policies  of  this  character  the  aim 
of  the  insurer  usually  is  to  get  as  large  premiums  as  possible  by  in- 
curring the  least  possible  liability ;  and,  on  the  other  hand,  after  an 
accident  occurs,  the  usual  aim  of  the  insured  is  to  recover  the  great- 
est amount  of  indemnity  for  the  least  possible  injury.  All  that  the 
courts  can  do  is  to  construe  the  contract  which  the  parties  have  made 
for  themselves ;  but  in  doing  so  they  should  give  it  a  reasonable  con- 
struction, so  as,  if  possible,  to  give  effect  to  the  purpose  for  which  it 
was  made. 

There  are  a  few  propositions  applicable  to  the  construction  of  the 
policy  under  consideration,  which,  under  the  evidence,  are  decisive  of 
this  case.  The  first  is  that  total  disability  does  not  mean  absolute 
physical  inability  on  part  of  the  insured  to  transact  any  kind  of  busi- 
ness pertaining  to  his  occupation.  It  is  suJnficient  if  his  injuries  were 
of  such  a  character  that  common  care  and  prudence  required  him  to 
desist  from  the  transaction  of  any  such  business  so  long  as  it  was  rea- 
sonably necessary  to  effectuate  a  cure.  This  was  a  duty  which  he 
owed  to  the  insurer  as  well  as  to  himself.  Young  v.  Insurance  Co., 
supra.  The  second  is  that  under  the  particular  terms  of  this  policy, 
to  wit,  "from  transacting  any  and  every  kind  of  business  pertaining 
to  the  occupation  above  stated"  (merchant),  inability  to  perform  some 
kinds  of  business  pertaining  to  that  occupation  would  not  constitute 
total  disability  within  the  meaning  of  the  policy.  For  example,  the 
occupation  of  a  retail  country  merchant  (as  plaintiff  was)  embraces 
various  departments  or  kinds  of  business,  such  as  keeping  the  books, 
making  out  accounts,  and  settling  with  customers;  waiting  on  cus- 
tomers, and  doing  up  their  purchases  in  packages ;  also  the  handling 
and  arranging  of  goods  in  the  store.    If  an  injury  disabled  the  insured 


468  ACCIDENT  INSURANCE 

merchant  from  transacting  one  or  more  of  these  branches  of  the  busi- 
ness, but  left  him  able  to  transact  others  with  due  regard  to  his  health, 
he  would  not  be  totally  disabled  within  the  meaning  of  this  policy. 
But,  fourth,  the  mere  fact  that  he  might  be  able,  with  due  regard  to 
his  health,  to  occasionally  perform  some  single  and  trivial  act  con- 
nected with  some  kind  of  business  pertaining  to  his  occupation  as  a 
merchant  would  not  render  his  disability  partial  instead  of  total,  pro- 
vided he  was  unable  substantially  or  to  some  material  extent  to  trans- 
act any  kind  of  business  pertaining  to  such  occupation. 

To  illustrate  this  proposition  by  reference  to  the  evidence  in  this 
case,  it  appears,  as  we  shall  assume,  that  on  one  or  two  occasions 
where  the  plaintiff  went  into  his  store  when  down  town  for  other 
purposes  he  handed  out  some  small  article  to  a  customer,  and  took  the 
change  for  it.  This  would  not  necessarily  prove  that  he  was  able  to 
attend  to  the  business  of  waiting  on  customers,  and  that  he  was  not 
"wholly  disabled"  within  the  meaning  of  the  policy.  He  might  be 
able,  on  temporary  visits  to  the  store,  to  occasionally  perform  a  tri- 
fling act  of  this  nature,  and  yet  be  substantially  and  essentially  unable 
to  transact  any  kind  of  business  pertaining  to  his  occupation  of  mer- 
chant. The  frequency  and  nature  of  these  acts  would  be  for  the  con- 
sideration of  the  jury  in  determining  whether  he  was  totally  disabled; 
but  would  ordinarily  be  by  no  means  conclusive  on  that  question. 

It  only  remains  to  apply  these  principles  or  rules  to  the  evidence. 
The  evidence  was,  as  might  be  expected,  conflicting;  but  that  intro- 
duced on  part  of  the  plaintiff  reasonably  tended  to  show  that  the  dis- 
location of  his  thumb  was  by  no  means  the  most  serious  of  his  in- 
juries; that  by  his  fall  he  so  injured  his  head  and  neck  as  to  produce 
severe  nervous  prostration,  which  so  seriously  affected  his  general 
health  and  strength  as  to  render  him  unable  to  transact,  to  any  ma- 
terial or  substantial  extent,  any  part  of  his  business  as  merchant;  that 
due  regard  to  his  health  required  him  to  wholly  desist  from  attempt- 
ing to  do  so,  and  that  he  was  so  advised  by  his  physician ;  that  when 
at  home  he  went  down  town  several  times  a  week  to  receive  medical 
treatment  from  his  physician,  and  to  get  shaved;  that  when  he  did 
so  he  would  frequently  go  into  his  store,  and  sit  down  for  a  brief 
time,  but  when  there  took  no  part  or  interest  in  the  transaction  of 
the  business  except  the  trivial  acts  on  two  or  three  occasions,  already 
referred  to ;  that  upon  the  advice  of  his  physician  he  went  to  Chicago, 
to  consult  a  medical  specialist;  that  when  he  returned,  his  health  not 
appearing  to  be  improved,  his  family  took  him  off  on  two  occasions 
on  a  summer  outing ;  and  that  it  was  not  until  the  last  of  September 
or  the  first  of  October  that  he  was  sufficiently  recovered  to  give  any 
considerable  attention  to  any  part  of  his  business.  This  evidence,  in 
our  judgment,  justified  the  jury  in  finding  that  he  was,  for  the  full  17 
weeks,  wholly  disabled,  within  the  meaning  of  the  policy,  from  trans- 
acting any  and  every  kind  of  business  pertaining  to  his  occupation  as 
a  merchant. 


LIABILITY    OF   THE    INSURER — TOTAL    DISABILITY  469 

Tlie  requests  to  charge  referred  to  in  the  assignments  of  error  were 
properly  refused,  for  the  reason,  if  no  other,  that  they  all  assumed 
that  if  the  plaintiff  on  some  particular  date  performed  some  single 
act  connected  with  his  business, — as,  for  example,  handing  a  customer 
a  package  of  garden  seeds,  or  a  dozen  of  nails, — it  necessarily  fol- 
lowed that  he  was  not  "wholly  disabled"  at  that  date  within  the  mean- 
ing of  the  policy. 

In  his  application  for  this  insurance  the  plaintiff  stated  the  value 
of  his  time  to  be  $25  a  week.  It  cropped  out  on  the  trial  that  he  held 
like  insurance  for  like  amounts  in  three  other  companies.  As  no  point 
was  made  on  the  trial  but  that  he  was  entitled  to  recover,  if  at  all. 
$25  a  week  during  his  total  disability  on  the  policy  in  suit,  the  ques- 
tion of  the  effect  of  the  other  insurance  on  the  amount  he  is  entitled 
to  recover  is  not  before  us.    Order  affirmed. 


470  GUARANTY,  CREDIT,  AND    LIABILITY  INSURANCE 


GUARANTY,  CREDIT,  AND  LIABILITY  INSURANCE 
I.  Fidelity  and  Guaranty  Insurance  ^ 


CHAMPION  ICE  MFG.  &  COLD  STORAGE  CO.  v.  AMERICAN 

BONDING  &  TRUST  CO. 

(Ck)urt  of  Appeals  of  Kentucky,  1903.  115  Ky.  863,  75  S.  W.  197,  103  Am.  St. 

Rep.  356.) 

Action  by  the  Champion  Ice  Manufacturing  &  Cold  Storage  Com- 
pany against  the  American  Bonding  &  Trust  Company.  From  a  judg- 
ment for  defendant,  plaintiff  appeals. 

Settle,  J.^  The  appellant,  Champion  Ice  Manufacturing  &  Cold 
Storage  Company,  is  a  corporation  doing  business  in  Covington,  Ky. 
It  had  in  its  employ  a  bookkeeper,  Geo.  H.  Weitkamp  by  name,  of 
whom  it  required  a  bond  of  indemnity,  which  was  furnished  by  the 
appellee,  American  Bonding  &  Trust  Company,  for  the  consideration 
of  $12.50  paid  it  in  cash.  By  the  terms  of  this  bond,  appellee  agreed 
to  indemnify  appellant  for  one  year  for  any  "loss  which  it  might  sus- 
tain by  reason  of  any  fraudulent  or  dishonest  act  upon  the  part  of 
Weitkamp,  amounting  to  larceny  or  embezzlement,"  that  might  occur 
while  he  continued  in  appellant's  service  as  bookkeeper.  It  appears 
that  Weitkamp,  while  in  appellant's  service,  wrongfully  converted 
$94.91  of  its  money,  and,  in  addition,  raised  five  of  its  checks,  each 
$100  in  amount,  which  he  caused  to  be  cashed  at  the  First  National 
Bank  of  Covington,  and  appropriated  to  his  own  use  the  amounts  thus 
fraudulently  realized. 

These  frauds  seem  to  have  been  committed  in  the  following  man- 
ner :  The  weekly  pay  roll  of  the  appellant  company,  as  prepared  by 
one  of  its  officers,  was  furnished  Weitkamp,  as  bookkeeper,  with  di- 
rection to  make  out  the  checks,  payable  to  himself,  for  the  amounts 
indicated.  Upon  thus  filling  out  the  checks  as  directed,  Weitkamp 
handed  them  to  the  proper  officer  of  the  company,  who  signed  and 
returned  them  to  him  to  take  to  the  bank  to  be  cashed.  Weitkamp 
raised  five  of  these  checks  $100  in  amount,  each,  had  them  cashed,  and 
retained  the  amounts  of  the  excess  over  and  above  the  sums  for  which 
they  were  originally  and  truly  issued.  *  *  *  The  aggregate 
amount  realized  by  Weitkamp,  from  the  fraudulent  alterations  of  the 
checks  was  $500,  and  the  additional  sum  of  $94.91  he  retained  out 

1  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  247,  248.  See, 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  pp.  3319-3323,  3336-3338. 

2  Part  of  ttie  opinion  is  omitted. 


FIDELITY   AND    GUARANTY    INSURANCE  471 

of  moneys  collected  by  him  as  bookkeeper  of  appellant,  or  took  from 
its  money  drawer.     *     *     * 

The  appellee  filed  answer  to  the  petition,  denying  any  liability  on 
the  bond,  except  to  the  extent  of  $94.91.     *     *     * 

The  appellee  company  is  engaged  in  the  business  of  furnishing 
bonds  to  secure  the  honesty  and  fidelity  of  fiduciaries  and  employes, 
and  the  one  sued  on  in  this  case  provides,  among  other  things,  that 
appellee  "does  hereby  agree  that  it  will  within  three  months  after  re- 
ceipt of  proof,  satisfactory  to  its  officers  and  subject  to  the  condi- 
tions hereinafter  expressed,  reimburse  the  employer  [appellant],  to 
an  amount  not  in  excess  of  the  penalty  of  this  bond  [$2,500],  for  such 
pecuniary  loss  as  the  employer  shall  have  sustained  of  money,  se- 
curities, or  other  personal  property  belonging  to  the  employer,  or  for 
w^hich  the  employer  is  responsible,  by  any  act  of  fraud  or  dishonesty 
amounting  to  larceny  or  embezzlement  committed  by  the  employe  dur- 
ing the  continuance  of  this  bond,  in  the  performance  of  the  duties  of 
said  office,  or  position,  or  such  other  position  as  he  may  be  subse- 
quently appointed  to,  or  called  upon  to  fill  by  the  employer  in  said 
service."  The  bond  further  provided  that,  in  case  of  discovery  of  de- 
fault or  loss,  the  appellant  should  give  immediate  notice  to  appellee, 
etc. 

There  can  be  no  question  but  that  the  covenants  of  the  bond  cover 
such  a  loss  as  was  sustained  by  the  appellant.  Its  only  purpose  was 
to  insure  against  loss  that  might  result  to  appellant  from  the  fraud 
or  dishonesty  of  Weitkamp,  amounting  to  larceny  or  embezzlement, 
whether  the  loss  was  that  of  money,  securities,  or  other  personal  prop- 
erty belonging  to  appellant,  or  for  which  it  might  be  made  responsi- 
ble ;  and  the  indemnity  thus  afforded  by  the  bond  not  only  applies  to 
any  act  of  fraud  or  dishonesty  which  Weitkamp  may  have  committed 
in  the  performance  of  his  duties  as  bookkeeper,  but  also  to  such  as 
he  may  have  committed  in  any  other  position  in  appellant's  employ- 
ment to  which  he  may  have  been  appointed,  or  called  upon  to  fill.  It 
is  not  material,  therefore,  whether  the  fraudulent  and  dishonest  acts 
of  Weitkamp  which  caused  loss  to  appellant  were  committed  by  the 
making  of  false  entries  in  its  books,  by  the  raising  of  its  checks,  or 
by  abstracting  money  from  its  money  drawer;  nor  is  it  material 
whether  he  was  at  the  time  acting  as  bookkeeper,  or  in  some  other 
capacity  in  appellant's  service.  In  either  or  in  any  of  these  events,  ap- 
pellee, under  the  terms  of  the  bond,  would  be,  and  is,  liable  for  the 
loss  which  he  occasioned. 

There  can  be  no  doubt,  under  the  evidence  in  this  case,  but  that 
W^eitkamp  was  authorized  by  appellant,  and  that  it  was  a  part  of  his 
duty,  to  receive  money  due  it  from  its  customers,  and  to  draw  money 
from  the  bank  in  which  appellant's  account  was  kept ;  and  it  was  also 
his  duty  to  account  to  appellant  for  the  moneys  thus  received.  His 
failure  to  do  so  was  dishonest  and  fraudulent,  and,  in  fact,  constituted 


472  GUARANTY,  CREDIT,  AND    LIABILITY  INSURANCE 

an  act  of  embezzlement;    and,  for  the  loss  resulting  to  his  employer 
thereby,  appellee's  liability  is  fixed  by  the  terms  of  the  bond. 

It  was  not  necessary,  in  order  to  fix  the  liability  of  appellee  upon 
the  bond,  that  appellant  should  produce,  in  support  of  any  claim  that 
it  might  have  arising  thereunder,  such  proof  as  would  convict  Weit- 
kamp  of  the  crime  of  larceny  or  embezzlement  as  defined  by  the 
laws  of  Kentucky.  Such  a  narrow  construction  of  the  provisions  of 
the  contract  is  not  required  by  the  law,  and  was  never  contemplated 
by  the  parties  to  it.  While  larceny  is  a  common-law  crime,  yet  in 
this  state  it  is  to  a  great  extent  statutory.  Embezzlement  is  purely  a 
statutory  crime,  but  the  terms  "larceny"  and  "embezzlement,"  in  the 
bond  or  policy  sued  on,  are  used  as  generic  terms  to  indicate  the  dis- 
honest and  fraudulent  breach  of  any  duty  or  obligation  upon  the  part 
of  an  employe  to  pay  over  to  his  employer,  or  account  to  him  for, 
any  money,  securities,  or  other  personal  property,  the  title  to  which 
is  in  the  employer,  that  may  in  any  manner  come  into  the  possession 
of  the  employe. 

It  will  be  observed  that  the  bond  in  this  case  is  a  printed  one — pre- 
pared, doubtless,  by  a  skilled  attorney  in  appellee's  employ.  The  con- 
tract expressed  therein  is  but  a  form  of  insurance,  and  the  law  of 
insurance  is  that  in  the  construction  of  policies,  if  there  be  any  am- 
biguity in  them,  it  must  be  construed  most  strongly  against  the  insur- 
ance company.  In  American  Surety  Company  v.  Pauly,  170  U  S. 
133,  18  Sup.  Ct.  552,  42  L.  Ed.  977,  Mr.  Justice  Harlan  admirably 
states  this  rule  as  follows :  "If,  looking  at  all  its  provisions,  the  bond 
is  fairly  and  reasonably  susceptible  of  two  constructions,  one  favor- 
able to  the  bank,  and  the  other  favorable  to  the  surety  company,  the 
former,  if  consistent  with  the  objects  for  which  the  bond  was  given, 
must  be  adopted;  and  this  for  the  reason  that  the  instrument  which 
the  court  is  invited  to  interpret  was  drawn  by  the  attorneys,  officers, 
or  agents  of  the  surety  company.  This  is  a  well-established  rule  in 
the  law  of  insurance.  First  National  Bank  v.  Hartford  Fire  Insur- 
ance Company,  95  U.  S.  673  [24  L.  Ed.  563].  *  *  *  As  said  by 
Lord  St.  Leonards  in  Anderson  v.  Fitzgerald,  4  H.  L.  Cas.  483:  'It 
[a  life  poHcy]  is,  of  course,  prepared  by  the  company;  and  if,  there- 
fore, there  should  be  any  ambiguity  in  it,  it  must  be  taken,  according 
to  law,  most  strongly  against  the  person  who  prepared  it.'  There  is 
no  sound  reason  why  this  rule  should  not  be  applied  in  this  case.  The 
object  of  the  bond  in  suit  was  to  indemnify  or  insure  the  bank  against 
loss  arising  from  any  act  of  fraud  or  dishonesty  on  the  part  of  O'Brien 
in  connection  with  his  duties  as  cashier,  or  with  the  duties  to  which, 
in  the  employer's  service,  he  might  be  subsequently  appointed.  That 
object  should  not  be  defeated  by  any  narrow  interpretation  of  its 
provisions,  nor  by  adopting  a  construction  favorable  to  the  company, 
if  there  be  another  construction  equally  admissible  under  the  terms 
of  the  instrument  executed  for  the  protection  of  the  bank." 

In  Fidelity  &  Casualty  Company  v.  Gate  City  National   Bank,  97 


FIDELITY   AND   GUARANTY    INSURANCE  473 

Ga.  634,  25  S.  E.  392,  33  L.  R.  A.  821,  54  Am.  St.  Rep.  440,  a  bond 
similar  to  the  one  under  consideration  was  executed  by  the  FideHty 
&  Casualty  Company  to  indemnify  the  bank  against  loss  by  reason  of 
the  fraud  or  dishonesty  of  one  Lewis  Redwine  in  connection  with  his 
duties  as  paying  teller,  "or  the  duties  to  which  in  the  employer's  serv- 
ice he  may  be  subsequently  assigned  by  the  employer."  After  the 
execution  of  the  bond,  Redwine  was  made  assistant  cashier,  and  as 
such  became  a  defaulter,  causing  loss  to  the  bank  in  a  large  amount. 
The  Supreme  Court  of  Georgia,  in  discussing  the  liability  of  the  guar- 
anty company  on  the  bond,  said :  "One  of  the  questions  for  decision 
is  whether  or  not  the  company  was  surety  for  him  in  the  latter  ca- 
pacity [that  of  assistant  cashier].  In  view  of  the  comprehensiveness 
of  the  above-quoted  language,  it  would  be  difficult  to  hold  it  was  not. 
He  was  certainly  appointed  subsequent  to  the  execution  of  the  bond 
to  the  office  of  assistant  cashier,  as  such  had  duties  to  perform  in  his 
employer's  service,  and  by  a  violation  of  those  duties  brought  loss  to 
the  master.  We  think  the  plain  language  of  the  contract  covers  the 
precise  state  of  facts  which  arose,  and  that  the  company  is  as  much 
bound  to  answer  to  the  bank  for  Redwine's  dishonesty  in  the  latter 
capacity  as  in  the  former." 

Under  the  rule  announced  in  the  case  supra,  it  is  manifest  that 
though  Weitkamp,  in  the  application  made  by  appellant  to  appellee  for 
the  bond  sued  on,  was  designated  as  a  bookkeeper  in  its  service,  and 
is  so  entitled  in  the  bond  itself,  the  fact  that  he  was  intrusted  by 
his  employer  with  the  duty  of  making  out  checks,  and  drawing  money 
from  the  bank  thereon,  did  not  relieve  appellee  from  liability  on  the 
bond,  as,  at  most,  the  additional  duty  was  only  one  that  was  assigned 
him  by  his  employer  subsequent  to  the  execution  of  the  bond,  and 
was  allowed  by  the  terms  of  the  bond  itself.  We  are  not,  however, 
prepared  to  concede  that  the  appellee  would  not  have  been  liable  for 
the  dishonesty  of  Weitkamp  in  causing  loss  to  his  employer  by  raising 
the  checks,  and  appropriating  the  money  thereby  received  from  the 
bank.  Even  in  the  absence  of  the  provision  of  the  bond  mentioned, 
for  we  incline  to  the  opinion  that  the  duty  of  making  out  checks,  and 
procuring  money  of  the  bank  thereon,  was  a  service  that  might  prop- 
erly and  naturally  have  been  intrusted  to  a  bookkeeper. 

It  is  contended  by  counsel  for  appellee  that  the  First  National  Bank 
of  Covington  is  liable  to  appellant  for  the  sum  embezzled  by  W^eit- 
kamp,  and  that  it  therefore  has  no  cause  of  action  upon  the  bond 
executed  by  appellee.  We  do  not  so  understand  the  law.  *  *  * 
But  even  though  the  bank  were  liable  to  api^ellant  for  the  amount  the 
checks  were  raised,  that  fact  would  not,  in  our  opinion,  exonerate  ap- 
pellee from  liability.  The  purpose  of  the  bond  was  to  furnish  indem- 
nity to  appellant  from  loss  resulting  from  the  fraud  or  dishonesty  of 
Weitkamp.  The  position  of  appellee  was  not  only  that  of  an  insurer, 
but  in  some  sort  that  of  a  surety  as  well,  and  in  both  these  capacities 
its  liability  is  primary  and  direct.     It  would  be  restricting  the  law  of 


474  GUARANTY,  CREDIT,  AND    LIABILITY  INSURANCE3 

both  insurance  and  suretyship  to  an  absurd  degree  to  say  that  appel- 
lee cannot  be  held  liable  until  after  appellant,  having  exhausted  every 
other  remedy,  or  prosecuted  to  insolvency  any  others  who  might  be 
liable,  is  still  not  reimbursed. 

In  other  words,  appellee's  liability  does  not  depend  upon  whether 
appellant  might  collect  the  stolen  $500  from  some  one  else.  Having 
a  right  of  action  against  the  defaulter,  Weitkamp,  appellant  has  also 
a  right  of  action  against  the  guarantor  of  his  honesty.  *  *  *  Re- 
versed.* 


II.  Credit  Insurance  * 


SHAKMAN  V.  UNITED  STATES  CREDIT  SYSTEM  CO. 

(Supreme  Ck)urt  of  Wisconsin,  1896.     92  Wis.  366.  66  N.  W.  528,  32  L.  R.  A. 

383,  53  Am.    St.   Rep.  920.) 

Action  by  L.  A.  Shakman  against  the  United  States  Credit  System 
Company  on  a  written  contract  issued  by  defendant  to  plaintifif,  and 
called  a  "certificate  of  guaranty."  The  plaintiff  is  a  manufacturer  of 
clothing,  doing  business  in  IMilwaukee,  and  was  such  in  1889.  The 
defendant  was,  at  that  time,  a  corporation,  incorporated  under  the 
laws  of  the  state  of  New  Jersey.  It  appeared  that,  about  the  23d  day 
of  October,  1889,  the  defendant's  agent  at  Chicago,  one  Langsdorf, 
called  on  the  plaintiff,  and  the  plaintiff  then  made  a  written  application 
to  the  defendant  company  for  a  certificate  of  guaranty. 

This  application,  so  far  as  necessary  to  be  stated,  is  as  follows :  "L. 
A.  Shakman  &  Co.  hereby  apply  for  a  guaranty  of  five  thousand  dol- 
lars of  the  debts  of  the  persons  to  whom  we  may  sell  goods,  according 
to  the  system  of  said  company,  during  the  period  of  one  year,  com- 
mencing on  the  1st  day  of  July,  1889,  and  ending  on  the  1st  day  of 
July,  1890,  and  for  that  purpose  we  hereby  make  application  to  pur- 
chase of  said  company  a  certificate  of  guaranty,  according  to  its  system 
of  credits,  under  the  copyright  of  said  company,  for  said  term,  and 
desire  to  enter  series  A  of  said  company,  which  series  is  made  up  of 
not  more  than  six  hundred  and  fifty  certificates,  averaging  a  guaranty 
of  $5,000  for  each  certificate.  This  application  is  made  with  the  un- 
derstanding that  the  said  company  limits  its  liability  to  pay  excess 
losses  in  any  one  series  in  accordance  with  the  following  table,  less 
the  deduction  allowed,  to  be  made  by  said  company,  as  the  value  of 
the  bad  debts  sustained  by  the  applicant,  which  is  hereby  agreed  to  be 

3  Compare  Reed  v.  Fidelity  &  Casualty  Co.,  189  Pa.  596,  42  Atl.  294  (1899). 

4  For  discussion  of  principles,  see  Vance  on  Insurance.  §  251.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  pp.  3323-3326,  3338-3341. 


CREDIT   INSURANCE  475 

12%  per  cent,  of  the  total  amount  of  losses  incurred  by  reason  of  bad 
debts  remaining  unpaid  at  the  time  of  proving  applicant's  losses  against 
said  company." 

Langsdorf  forwarded  this  application  to  the  company,  by  whom  it 
was  accepted  and  a  "Certificate  of  Guaranty"  returned  to  Langsdorf. 
who  delivered  it  to  Shakman  on  the  8th  day  of  November,  1889.  This 
certificate  reads  as  follows : 

"For  and  in  consideration  of  the  terms  and  conditions  herein  named, 
and  of  the  sum  of  one  hundred  and  forty-five  dollars,  paid  by  L.  A. 
Shakman  &  Co.,  hereby  grants,  bargains,  and  sells  to  the  said  L.  A. 
Shakman  &  Co.  this  certificate,  issued  under  its  copyrighted  system  of 
credits,  in  series  A,  class  B,  for  the  term  of  one  year,  commencing  on 
the  1st  day  of  July,  1889,  and  ending  on  the  1st  day  of  July,  1890. 
And  for  said  consideration  the  said  United  States  Credit  System  Com- 
pany guaranties,  covenants,  and  agrees  that  if  the  said  L.  A.  Shakman 
&  Co.  should,  by  reason  of  the  insolvency  of  any  debtor  or  debtors, 
who  owe  such  debtor  debts  for  merchandise  sold  and  delivered  during 
said  period,  under  the  credit  system  of  said  company  as  hereinafter 
mentioned,  or  by  reason  of  any  uncollectible  judgment  or  judgments 
that  he  or  they  may  have  obtained,  for  the  sum  or  sums  of  money  due 
for  merchandise  sold  and  delivered  as  aforesaid,  have  losses  in  excess 
of  1%  per  cent,  on  their  total  sales  made  during  the  above  limited 
period,  to  pay  such  excess  loss,  not  exceeding  five  thousand  dollars, 
less  the  deductions,  and  subject  to  the  terms  and  conditions  herein- 
after named.  It  is,  however,  expressly  agreed  and  understood  that  this 
certificate  forms  a  part  of  series  A,  and  the  company's  liability  to  pay 
excess  losses  in  any  series  is  limited  to  the  fund  or  funds  provided  for 
said  series,  as  appears  more  specifically  in  the  application  signed  by 
said  L.  A.  Shakman  &  Co.,  which  application  forms  a  part  of  this 
certificate. 

"Terms  and  Conditions. 

"(1)  That  no  credit  which  may  have  been  given  to  any  party  or  par- 
ties shall  be  included  in  the  calculation  of  losses,  unless  he  or  they 
were  rated  in  R.  G.  Dun  &  Co.'s  Mercantile  Agency  in  the  latest  books 
or  reports  issued  by  it  at  the  time  of  shipping  the  goods,  and  that  no 
special  or  other  report  was  received  by  said  L.  A.  Shakman  &  Co. 
changing  the  same.  And  in  case  any  change  has  occurred,  such  sale 
and  shipment  shall  be  considered  to  have  been  made  in  accordance  with 
such  change.  (2)  That,  in  calculating  the  losses,  no  credit  that  may 
have  been  given  shall  be  included  therein  exceeding  credit  of  30  per 
cent,  on  the  lowest  capital  rating  such  party  or  parties  were  rated  in 
said  Mercantile  Agency's  books  or  reports.  (3)  That,  in  the  calcula- 
tion of  losses,  no  account  against  any  debtor  shall  be  included  therein 
for  more  than  ten  thousand  dollars.  (4)  That  no  credit  that  may 
have  been  given  shall  be  included  in  the  calculation  of  losses,  unless 
the  rating  of  the  party  to  whom  such  credit  is  given  was  at  least  two 


476  GUARANTY,  CREDIT,  AND    LIABILITY   INSURANCE 

thousand  dollars  ($2,000)  at  the  time  of  shipping  the  goods,  and  that 

the  credit   rating  was  the  best  or  next  to  the  best   for  the  capital. 
*     *     * 

"Special :  In  condition  No.  2,  20  per  cent,  is  changed  to  30  per 
cent.  Condition  No.  4  is  changed  so  as  to  include  sales  to  parties 
whose  rating  is  K  Sy^  in  Dun's  Agency  Book." 

At  the  time  of  the  delivery  of  this  certificate,  and  before  payment 
of  the  consideration  or  premium,  Shakman  objected  that  the  policy 
did  not  allow  the  use  of  Bradstreet's  reports  of  ratings  as  well  as 
Dun's.  There  is  a  conflict  in  the  evidence  as  to  what  followed  this 
objection.  Shakman's  evidence  tends  to  prove  that  Langsdorf  said 
he  would  concede  this,  and  that  he  had  authority  to  do  so,  and  that 
Langsdorf  thereupon  wrote,  and  delivered  with  the  policy,  the  follow- 
ing slip:  "Milwaukee,  Nov.  8,  1889.  Indorsement  to  certificate  No. 
3,452,  in  favor  of  L.  A.  Shakman  &  Co.,  to  wit:  Should  any  party 
to  whom  above-named  firm  may  sell  goods  not  be  rated  within  the 
system  of  this  company  at  Dun's  Mercantile  Agency,  and  Bradstreet's 
Agency  does  rate  such  party,  within  the  system  of  this  company,  then, 
in  such  cases,  the  latter  shall  be  binding  upon  this  company.  A.  Langs- 
dorf, Genl.  Supt."  Langsdorf,  on  the  other  hand,  while  admitting 
that  Shakman  objected  to  the  policy  because  it  did  not  allow  the  use 
of  Bradstreet's  ratings  as  well  as  Dun's,  denies  that  he  gave  the  in- 
dorsement to  Shakman  as  a  contract,  but  says  that  he  told  him  he 
would  submit  the  matter  to  the  company  for  their  decision,  and  that 
he  wrote  out  the  indorsement  simply  to  show  Sha'  man  how  it  woul  1 
read  in  case  the  company  approved  it.  At  the  same  time,  and  after 
the  delivery  of  the  slip,  Shakman  paid  to  Langsdorf  the  premium  of 
$155. 

It  appeared  that  one  Fishell  was  the  partner  of  Langsdorf.  and  that 
their  office  was  at  Chicago,  and  that  they  styled  it  the  "Western  De- 
partment" of  the  United  States  Credit  Company;  Langsdorf  calling 
himself  general  superintendent,  and  Fishell  general  manager.  Langs- 
dorf testifies  that  they  assumed  these  titles  without  authority  of  the 
company,  and  really  only  had  authority  to  solicit  business  and  collect 
premiums.  On  or  about  November  26,  1889,  the  plaintiff  received  a 
letter  from  Fishell  as  follows :  "Inclosed  find  indorsement  slip,  as  re- 
quested, which  please  attach  to  the  certificate,  to  take  the  place  of  the 
agreement  left  with  you  signed  by  our  Mr.  Langsdorf.  \'ery  respect- 
fully, Albert  Fishell,  Mgr."  The  slip  inclosed  reads  as  follows : 
"Should  Dun's  Mercantile  Agency  not  rate  a  party,  and  Bradstreet's 
Agency  should  give  such  party  a  rating  or  report,  and  such  rating  or 
report  is  sufficient  to  be  covered  by  the  system  of  this  company,  then 
and  in  that  case  the  said  L.  A.  Shakman  &  Co.  may  use  Bradstreet's 
Mercantile  Agency  as  a  basis  for  such  party.  This  special  permission 
to  take  effect  November  13,  1889.  [Signed]  Fred  M.  Wheeler.  Sec- 
retary." The  plaintiff  read  the  letter,  but  not  the  slip,  and  paid  no 
attention  to  it,  and  did  not  return  it. 


CREDIT   INSURANCE  477 

Judgment  for  the  plaintiff  for  $2,856.75,  with  interest  and  costs, 
was  rendered,  and  the  defendant  appealed. 

WiNSLOW,  J.^  We  regard  the  contract  before  us  as  unquestionably 
a  contract  of  insurance.  An  insurance  contract  is  a  contract  whereby 
one  party  agrees  to  wholly  or  partially  indemnify  another  for  loss  or 
damage  which  he  may  suffer  from  a  specified  peril.  The  peril  of  loss 
by  the  insolvency  of  customers  is  just  as  definite  and  real  a  peril  to  a 
merchant  or  manufacturer  as  the  peril  of  loss  by  accident,  fire,  light- 
ning, or  tornado,  and  is,  in  fact,  much  mo^e  frequent.  Xo  reason  is 
perceived  w^hy  a  contract  of  indemnification  against  this  ever  present 
peril  is  not  just  as  legitimately  a  contract  of  insurance  as  a  contract 
which  indemnifies  against  the  more  familiar,  but  less  frequent,  peril 
by  fire.  This  very  contract  has  been  (sub  silentio)  construerl  as  a 
policy  of  insurance  by  the  supren:e  court  of  New  Jersey.  Robertson 
V.  Credit  System  Co.,  57  X.  J.  Law,  12,  29  Atl.  42 i. 

The  contract  being,  then,  a  contract  of  insurance,  and  the  defend- 
ant's business  being  the  making  of  such  contracts,  it  follows  that  the 
defendant  is  an  insurance  corporation,  within  the  meaning  of  sections 
1977  and  1978,  Rev.  St.  Langsdorf  was  its  agent  for  the  purpose  of 
soliciting  insurance,  transmitting  applications,  and  collecting  premiums, 
and  received  pay  therefor.  He  was,  consequently,  under  section  1977, 
supra,  its  agent  for  all  intents  and  purposes,  and  had  power  to  make 
the  additional  agreement  contained  in  the  indorsement  dated  X'ovem- 
ter  8th.  Renier  v.  Insurance  Co.,  74  Wis.  89,  42  X.  W.  208.  The 
court  has  found,  on  ample  evidence,  that  he  did  make  that  agreement, 
and  the  fact  is  therefore  settled.  It  is,  then,  a  fact  m  the  case  that  a 
complete  contract  of  insurance  was  made,  on  or  about  X'ovember  8th. 
by  the  terms  of  which  the  plaintiff  was  to  have  the  right  to  use  the 
Bradstreet's  ratings  in  case  a  given  customer  was  given  no  rating  by 
Dun. 

But  it  is  said  that  the  memorandum  sent  to  the  plaintiff  November 
26th,  which  permitted  the  use  of  Bradstreet's  reports  only  after  No- 
vember 13th,  1889,  became  effective  and  binding  by  reason  of  the 
plaintiff's  receiving  it  and  failing  to  object  thereto.  We  are  unable 
to  agree  with  this  contention.  The  agreement  of  Xovember  8th.  bein  : 
perfect,  the  letter  and  inclosed  memo'-andum  of  X^ovember  26th  could, 
at  the  most,  amount  to  nothing  more  than  a  proposal  to  change  the 
terms  of  the  existing  contract.  This  the  plaintiff  could  do  or  not,  as 
he  chose ;  but  it  cannot  be  said  that  he  did  so  unless  he  expresslv 
agreed  to  the  change,  or  unless  his  silence  was  legally  equivalent  to  an 
express  consent  to  the  proposed  change.  There  was  no  express  agree 
ment  to  make  the  change,  nor  do  we  think  that  the  simple  failure  to 
answer  the  proposal  should  be  construed  as  such  an  agreement,  in  the 
absence  of  all  evidence  showing  that  the  defendant  was  influenced  in 

5  The  statement  of  facts  is  abrid.i^ed  from  the  original  report  aud  part  of 
the  opinion  is  omitted. 


478  GUARANTY,  CREDIT,  AND    LIABILITY   INSURANCE 

its  conduct  by  plaintiff's  silence.  An  agreement  inferred  from  silence 
must,  in  such  case,  rest  on  the  principle  of  estoppel ;  and  one  essential 
element  of  estoppel  is  lacking  here,  namely,  a  change  of  position  on 
the  part  of  the  defendant,  relying  on  the  plaintiff's  silence,  which 
would  result  in  substantial  injury  to  the  defendant  were  it  not  per- 
mitted to  rely  on  the  estoppel.  The  conclusion  necessarily  is  that  the 
contract  which  became  perfected  November  8th,  with  the  Langsdorf 
indorsement,  became  the  contract  governing  the  rights  of  the  parties. 

Another  question  now  arises  upon  the  construction  to  be  given  to 
the  Langsdorf  indorsement.  It  will  be  noticed  that  the  policy,  though 
dated  October  23,  1889,  in  terms  covers  the  period  of  one  year  com- 
mencing on  the  1st  of  July,  1889,  and  that  it  insures  against  losses  ac- 
cruing for  merchandise  sold  and  delivered  during  that  period.  Thus, 
the  contract  covers  several  months'  business  transactions  previous  to 
its  date.  It  appears  in  evidence  that  a  considerable  number  of  the 
losses  for  which  the  plaintiff  has  recovered  judgment  were  suffered 
between  July  1,  1889,  and  the  delivery  of  the  contract,  and  that  these 
losses  arose  from  credits  given  to  parties  who  had  no  credit  rating 
in  Dun's  reports,  but  did  have  such  rating  in  Bradstreet's  reports.  It 
is  now  contended  that  the  Langsdorf  indorsement  is  purely  prospec- 
tive in  its  operation,  and  only  insures  losses  occurring  after  November 
8th;  so  that,  for  the  losses  occurring  before  that  date,  covered  by 
Bradstreet's  reports  only,  there  can  be  no  recovery.  The  indorsement 
reads:  "Should  any  party  to  whom  above-named  firm  may  sell  goods 
not  be  rated,  within  the  system  of  this  company,  at  Dun's  Ixlercantile 
Agency,"  etc.  The  argument  cannot  prevail.  This  indorsement  is  part 
of  the  whole  contract.  It  must  be  read  in  connection  with  all  the 
other  provisions  of  the  contract,  and  as  though  it  were  incorporated  in 
the  contract  at  the  proper  place.  So  read,  there  can  be  no  doubt  that 
the  contract  refers  to  all  goods  sold  and  credits  given  between  July, 
1889,  and  July,  1890,  and  that  the  right  to  use  the  Bradstreet  ratings 
in  the  proper  cases  w^as  intended  to  be  as  broad  in  its  terms  as  to  time 
as  the  right  to  use  the  Dun  ratings. 

Subdivision  2  of  the  terms  and  conditions  of  the  policy  provides 
that,  in  calculating  "losses,  no  credit  that  may  have  been  given  shall 
be  included  therein,  exceeding  a  credit  of  30  per  cent,  on  the  lowest 
capital  rating  such  party  or  parties  were  rated  at  in  said  mercantile 
agency's  books  or  reports."  In  a  number  of  instances  of  losses  the 
ptaintiff  had  given  the  insolvent  debtors  a  larger  credit  than  30  per 
cent,  of  their  lowest  capital  rating.  The  court  allowed,  in  such  case^. 
30  per  cent,  of  such  rating,  and  disallowed  the  excess.  It  is  claimed 
by  appellant  that  the  clause  means  that  the  entire  credit  is  to  be  ex- 
cluded, and  not  simply  the  excess  above  30  per  cent,  of  the  rating. 
This  is  purely  a  matter  of  construction  of  language,  and  our  construc- 
tion agrees  w'ith  that  of  the  trial  court,  namely,  that  it  is  only  that  part 
of  the  credit  exceeding  30  per  cent,  of  the  rating  which  is  to  be  ex- 
cluded. 


employer's  liability  insurance  il9 

It  is  claimed  that  a  loss  of  $300  suffered  by  the  failure  of  one  Si- 
mansky  was  improperly  allowed.  It  appears  that  Simansky's  name 
appears  in  Dun's  reports  with  the  notation  '"Blank  3";  that  is,  no 
capital  rating,  and  credit  "fair."  In  Bradstreet's  reports,  however,  he 
appears  rated  "X  D,"  which  means  $1,000  to  $2,000  capital,  credit 
fair.  It  seems  to  us  that  this  loss  was  properly  allowed.  Simansky  had 
no  capital  rating  in  Dun's  reports.  The  system  of  the  defendant  re- 
quired both  a  capital  and  a  credit  rating.  This  was,  therefore,  a  case 
clearly  within  the  Langsdorf  indorsement,  where  the  party  was  not 
"rated  within  the  system  of  the  company''  at  Dun's  Agency,  and  was 
so  rated  in  Bradstreet's  Agency.     *     *     *    Affirmed. 


III.  Employer's    Liability    Insurance 


STEPHENS  V.  PENNSYLVANIA  CASUALTY  CO. 

(Supreme  Court  of  Michigan,  190.3.     1.3.5   Mich.   ISO,   97   N.   W.  GS6,  3   Ann. 

Cas.  478.) 

Action  by  Henry  Stephens  against  the  Pennsylvania  Casualty  Com- 
pany.    From  a  judgment  for  plaintiff,  defendant  appeals. 

This  is  a  case-made  after  judgment.  On  April  14,  1900,  the  de- 
fendant and  the  Detroit,  Rochester,  Romeo  &  Lake  Orion  Railway 
Company  entered  into  a  contract  of  indemnity ;  the  only  parts  which 
bear  upon  this  controversy  being  as  follows : 

"In  consideration  of  the  Agreements  hereinafter  and  the  \\'arran- 
ties  in  the  application  for  this  Policy  contained,  which  application  is 
made  a  part  of  this  Contract  of  Insurance,  and  of  fourteen  hundred 
dollars  premium.  The  Pennsylvania  Casualty  Company  of  Scranton. 
Pennsylvania  (hereinafter  called  'the  Con:pany')  does  hereby  agree  to 
indemnify  Detroit,  Rochester,  Romeo  &  Lake  Orion  Railway  Com- 
pany of  Detroit,  County  of  Wayne  and  State  of  Michigan  (hereinafter 
called  'the  Assured')  for  the  term  of  one  year,  beginning  on  the  four- 
teenth day  of  April,  1900,  at  noon,  and  ending  on  the  fourteenth  dav 
of  April,  1901,  at  noon,  standard  time,  against  Leg:al  Liabilitv  of  the 
Assured  for  injury  to  or  death  of  persons,  and  all  legal  liability  aris- 
ing or  accruing  therefrom  for  loss  of  service,  funeral  expenses,  and 
medical  attendance,  being  the  result  of  casualties  occurring  by  reason 
of  the  operation  of  the  Street  Railway  named  in  the  said  application 
to  an  amount  not  to  exceed  twenty-five  hundred  dollars  for  injury  to 
or  death  to  any  person,  and  subject  to  the  same  limit  for  each  person 
not  to  exceed  ten  thousand  dollars  for  the  total  liability  in  any  one 

6  For  discussion  of  principles,  see  Vance  on  Insurance,  §§  2.52.  2.53.  See. 
also,  Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  pp.  3313^319,  .3330-3335. 


480  GUARANTY,  CREDIT,  AND    LIABILITY  INSURANCE 

casualty,  whereby  several  may  be  killed  or  injured;  and  not  to  exceel 
thirty  thousand  dollars  for  total  liability  during  the  term  of  this  con- 
tract. 

"Special  Agreements. 
********* 

"(7)  The  indemnity  hereby  provided  for  shall  not  be  payable  until 
the  loss  or  damage  has  been  adjusted  and  settled  by  the  Company  nor 
until  thirty  days  after  satisfactory  particulars  of  the  loss  or  damage 
shall  have  been  furnished  the  Company. 

******** 

"(10)  The  Company  shall  have  control  of  the  defense  of  any  legal 
proceedings  against  the  Assured  in  the  name  and  on  behalf  of  the 
Assured  for  accidents  covered  by  the  provisions  of  this  contract,  and 
in  case  legal  proceedings  shall  be  instituted  against  the  Assured  for 
such  accidents,  the  Assured  shall,  within  five  days  of  the  service  of 
any  writ  upon  the  Assured,  deliver  to  the  Company,  at  its  home  office, 
any  writ,  and  all  papers  or  copies  of  the  same,  pertaining  to  said  suiL 
or  action,  and  all  other  papers  received,  possessed  or  controlled  by 
the  Assured,  relating  to  such  suit  or  action,  immediately  upon  receipt 
of  same,  and  keep  the  Company  at  all  times  informed  of  each  succes- 
sive step,  and  of  all  steps  taken  in  said  suit  or  action,  immediately  upon 
the  occurrence  of  the  same,  and  render  to  the  Company  all  necessary 
information  and  assistance  to  properly  conduct  a  defense,  or  prosecute 
an  appeal,  or  effect  a  settlement,  and  a  failure  of  the  Assured  to  fully 
comply  with  the  provisions  of  this  section  shall  release  the  Company 
from  all  liability  by  reason  of  such  accident,  suit  or  action." 

On  September  21,  1900,  a  passenger  upon  the  railroad  was  injured, 
brought  suit,  and  recovered  on  May  2,  1901,  a  judgment  of  $2,592 
and  costs  of  suit,  taxed  at  $88.71.  The  defendant  assumed  the  direct 
control  of  the  defense  in  that  suit.  The  railroad  company  was  satis- 
fied with  the  adjustment,  and  did  not  desire  to  appeal,  but  the  casualty 
company  insisted  upon  appealing  to  the  Supreme  Court.  It  was  finally 
agreed  to  assign  only  such  errors  as  would,  if  sustained  by  the  Su- 
preme Court,  result  in  a  reversal  of  the  judgment  without  ordering  a 
new  trial.  Upon  an  appeal  to  this  court,  taken  at  the  instigation  of  the 
defendant,  which  paid  all  the  expense  of  the  appeal,  the  judgment  was 
affirmed  February  11,  1902  (89  N.  W.  32),  and  costs  taxed  on  Febru- 
ary 20th  at  $73.51.  On  March  17,  1902,  the  judgment  and  the  costs  of 
both  courts,  and  the  accrued  interest  upon  the  judgment  and  costs,  to- 
taling $2,892,  were  paid  by  the  railway  company;  plaintiff  furnishing 
the  money,  and  taking  an  assignment  of  the  claim  against  the  defend- 
ant. 

Grant,  J. ''  The  main  question  arises  upon  the  construction  of  the 
contract  of  indemnity.  Plaintiff  contends  that  the  legal  liability  be- 
came adjusted  and  settled  upon  the  rendition  of  the  judgment  in  the 

7  The  statement  of  facts  is  abridged  and  part  of  the  opinion  is  omitted. 


employer's  liability  insurance  481 

circuit  court.  Defendant  insists  that  the  Hability  was  not  adjusted 
and  settled  until  the  judgment  was  paid,  or,  if  that  be  not  so.  until 
the  final  determination  in  the  Supreme  Court.  The  contention  of  the 
defendant  upon  the  trial  was  that  its  liability  was  limited  to  $2,500, 
and  that,  having  paid  that  amount  into  court,  its  liability  ended.  This 
result  would  follow  if  its  construction  of  the  contract  be  sound. 

We  think  that,  under  the  terms  of  this  contract,  when  a  final  judg- 
ment was  rendered  against  the  railroad  company  the  liability  under 
defendant's  contract  became  fixed,  and  it  was  obligated  to  pay  the 
amount  of  the  indemnity,  although  the  judgment  had  not  been  paid. 
Under  defendant's  claim,  if  the  indemnitee  were  insolvent  and  never 
paid  the  judgment,  the  indemnitor  would  never  be  compelled  to  pay. 
This  result  would,  of  course,  follow  if  the  contract  of  indemnity  re- 
quired the  indemnitee  to  be  first  damnified  by  payment,  as  was  held 
in  the  case  of  Weller  v.  Eames,  15  Minn.  461  (Gil.  376),  2  Am.  Rep. 
150,  upon  which  the  defendant  largely  relies.  That  case  is  distinguish- 
able from  the  present  and  others  like  it.  Weller,  the  plaintiflF,  was  one 
of  the  two  defendants  who  were  sued  for  the  same  cause  of  action. 
Weller  alone  obtained  an  indemnity  bond.  It  might  very  well  be 
held  that  in  such  case  Weller  might  never  be  compelled  to  pay,  as 
plaintifif  might  enforce  his  judgment  against  the  other  defendant. 
However  that  may  be,  the  weight  of  authority  seems  to  be  that  con- 
tracts like  that  in  this  case  are  held  to  constitute  an  indemnity  against 
liability  for  damages,  and  not  merely  indemnity  against  damages.  In 
the  former  case  payment  is  not  essential,  while  in  the  latter  it  is. 

The  authorities  make  a  distinction  between  these  two  classes  of 
indemnity.  This  distinction  is  very  clearly  stated  in  Gilbert  v.  Wiman. 
1  N.  Y.  550,  49  Am.  Dec.  359,  wherein  the  court  say :  "By  the  former 
[a  contract  to  indemnify  against  liability]  he  [the  indemnitee]  is  to 
be  saved  from  the  thing  specified;  by  the  latter  [a  contract  to  indem- 
nify against  loss  or  damage],  from  its  consequences.  *  *  *  It  is 
the  distinction  between  an  aflfirmative  covenant  for  a  specific  thing, 
and  one  of  indemnity  against  damage  by  reason  of  the  nonperform- 
ance of  the  thing  specified.  The  object  of  both  may  be  to  save  the 
covenantee  from  damages,  but  their  legal  consequences  to  the  parties 
are  essentially  different."  See,  also,  16  Am.  &  Eng.  Enc  Law  (2d 
Ed.)  178.  ^ 

The  following  authorities  hold  that,  under  contracts  of  like  charac- 
ter with  the  one  in  this  case,  a  payment  of  the  judgment  is  not  es- 
sential to  recovery.  Pickett  v.  Casualty  Co.,  60  S.  C.  477,  38  S.  E. 
160,  629 ;  Fenton  v.  Casualty  Co.,  36  Or.  283,  56  Pac.  1096,  48  L. 
R.  A.  770;  Anoka,  etc.,  v.  Casualty  Co.,  63  Minn.  286,  65  N.  W.  353, 
30  L.  R.  A.  689;  Hoven  v.  Association,  etc.,  93  Wis.  201  67  N  w' 
46,  22  L.  R.  A.  388;   McBeth  v.  Mclntyre,  57  Cal.  49. 

Which  judgment  fixed  the  time  of  liability— the  judgment  in  the 
circuit  court,  or  the  one  in  the  Supreme  Court  ?  By  the  terms  of  the 
contract,  the  defendant's  liability  was  limited  to  $2,500.  It  had  the 
CooLEY  Ins. — 31 


482  GUARANTY,  CREDIT,  AND    LIABILITY  INSURANCE 

right  to  compromise  and  settle  with  the  injured  party,  or,  if  it  con- 
cluded that  the  railroad  company  was  not  liable  for  negligence,  it  had 
the  right  to  contest  the  suit.  It  was  also  contemplated  by  the  con- 
tract that  defendant  might  appeal  the  case  to  the  Supreme  Court. 
This  right  of  appeal  in  the  defendant  was  absolute.  If  the  railroad 
company  had  settled  the  case,  after  such  appeal  had  been  taken  with- 
out the  defendant's  consent,  or  against  its  protest,  the  defendant  would 
have  been  discharged  from  liability.  American  Surety  Co.  v.  Ballman 
<C.  C.)  104  Fed.  634;  Security  Trust  Co.  v.  Robb  (C.  C.)  116  Fed. 
201.  This  right,  therefore,  was  given  by  the  contract,  and  the  loss  or 
damage  was  not  adjusted  and  settled  until  the  determination  of  the 
case  in  this  court.  By  that  adjudication  the  defendant's  liability  was 
adjusted  and  settled.  Interest,  therefore,  can  be  charged  only  from 
February  11,  1902.    *     *     *     Modified. 


IV.  Rights  of  Injured  Person  in  Insurance  Fund  ' 


BAIN  V.  ATKINS. 

(Supreme  Judicial  Court  of  Massachusetts,   1902.     181  Mass.  240,  63  N.  E. 
414,  57  L.  R.  A.  791,  92  Am.   St.  Rep.  411.) 

Suit  by  Bain  against  Atkins  and  another.    Reserved  case. 

Barker,  J.  It  is  now  settled  by  the  findings  and  the  agreed  facts 
that  when  the  plaintiff  began  this  attempt  to  reach,  in  liquidation  of 
his  claim  against  Atkins,  a  supposed  obligation  to  Atkins  on  the  part 
of  the  Union  Casualty  &  Surety  Company,  that  obligation  was  no 
longer  in  existence.  The  bill  was  filed  on  January  19,  1898.  Nine 
days  before  that  date  the  supposed  obligation,  disputed  by  the  com- 
pany, had  been  ended  by  an  actual  payment  of  money  then  made  by 
the  company  to  Atkins  on  a  settlement  made  in  good  faith  on  the  part 
of  both,  and  without  notice  to  either  of  any  claim  on  the  part  of  the 
plaintifif  in  the  obligation,  or  founded  upon  it.  The  settlement  was 
not  made  for  the  purpose  of  enabling  Atkins  to  avoid  his  liability  to 
the  plaintiff,  nor  of  enabling  the  company  to  avoid  any  liability  to  the 
plaintiff.  When  it  was  made  the  company  had  no  knowledge  of  At- 
kins' financial  condition. 

The  settlement  is  found  to  have  been  made  as  in  the  ordinary  course 
between  two  parties,  one  of  whom  denied  all  liability,  and  wanted  to 
settle  for  as  little  as  it  could  without  injuring  its  reputation  for  fair 
dealing  with  those  who  insured  with  it,  and  the  other  of  whom  wanted 

8  For  discussion  of  principles,  see  Vance  on  Insurance,  §  254.  See,  also, 
Cooley,  Briefs  on  the  Law  of  Insurance,  vol.  4,  p.  3335. 


EIGHTS   OF   INJURED   PERSON    IN   INSURANCE    FUND  483 

to  get  all  he  could,  up  to  the  full  amount  of  his  claim.  Atkins  put 
into  his  business  the  $3,000  which  he  received  in  the  settlement,  and, 
had  it  not  been  for  the  judgment  of  $7,000  afterwards  recovered 
against  him  by  the  plaintiff  in  the  action  of  tort  for  personal  inju- 
ries then  pending,  Atkins  could  have  gone  on  with  his  business.  He 
went  into  bankruptcy  in  consequence  of  that  judgment,  and  has  paid 
nothing  upon  the  judgment,  and  the  plaintiff  has  been  unable  to 
collect  the  judgment,  in  whole  or  in  part. 

We  do  not  consider  whether,  if,  when  the  bill  was  brought,  the 
company  had  been  under  an  existing  obligation  to  indemnify  Atkins 
against  the  plaintiff's  demand,  the  latter  could  have  compelled,  in  eq- 
uity, the  application  of  that  obligation  to  the  satisfaction  of  his  claim 
against  Atkins.  The  fact  that  when  the  plaintiff  sought  the  aid  of 
an  equity  court  there  was  no  such  obligation  is  conclusive  against 
the  contention  that  there  was  an  equity  springing  from  such  an  ob- 
ligation. 

Therefore  the  plaintiff  is  compelled  to  contend  that  the  obligation 
of  the  company  upon  the  happening  of  the  accident  constituted  a  fund 
for  the  benefit  of  the  plaintiff,  impressed  with  a  trust  for  him ;  that 
such  a  trust  fund  could  be  paid  to  Atkins,  if  at  all,  only  to  reimburse 
him  after  he  had  satisfied  his  own  liability  to  the  plaintiff;  and  that 
the  company's  settlement  with  x^tkins  without  the  consent  of  the 
plaintiff  was  in  the  company's  own  wrong,  and  void  as  to  the  plain- 
tiff. 

The  essence  of  this  contention,  without  which  no  part  of  it  can 
stand,  is  that  the  insurance  constituted  a  trust  fund  for  the  benefit 
of  the  plaintiff,  and  for  this  there  is  no  ground. 

The  only  parties  to  the  contract  of  insurance  were  Atkins  and  the 
company.  The  consideration  for  the  company's  promise  came  from 
Atkins  alone,  and  the  promise  was  only  to  him  and  his  legal  repre- 
sentatives. Not  only  was  the  plaintiff  not  a  party  to  either  the  con- 
sideration or  the  contract,  but  the  terms  of  the  contract  do  not  pur- 
port to  promise  an  indemnity  for  the  benefit  of  any  person  other  than 
Atkins.  The  policy  only  purports  to  insure  Atkins  and  his  legal  rep- 
resentatives against  legal  liability  for  damages  respecting  injuries 
from  accidents  to  any  person  or  persons  at  certain  places,  and  within 
the  time  and  under  the  circumstances  defined.  It  contains  no  agree- 
ment that  the  insurance  shall  inure  to  the  benefit  of  the  person  ac- 
cidentally injured,  and  no  language  from  which  such  an  understanding 
or  intention  can  be  implied.  Atkins  was  under  no  obligation  to  pro- 
cure insurance  for  the  benefit  of  the  plaintiff,  nor  did  any  relation  ex- 
ist between  the  plaintiff  and  Atkins  wdiich  could  give  the  latter  the 
right  to  procure  insurance  for  the  benefit  of  the  plaintiff.  The  only 
correct  statement  of  the  situation  is  simply  that  the  insurance  was 
a  matter  wholly  between  the  company  and  Atkins,  in  which  the  plain- 
tiff had  no  legal  or  equitable  interest,  any  more  than  in  other  prop- 
erty belonging  absolutely  to  Atkins. 


484  GUARANTY,  CREDIT,  AND    LIABILITY   INSURANCE 

Most  of  the  cases  cited  in  support  of  the  plaintiff's  contention  are 
entirely  wide  of  the  mark.     In  all  of  them  the  obligation  which  the 
plaintiff  sought  to  apply  to  the  extinguishment  of  his  demand  existed 
when  he  brought  his  suit.     In  Anoka  Lumber  Co.  v.  Fidelity  &  Cas- 
ualty Co.,  63  Minn.  286,  65  N.  W.  353,  30  L.  R.  A.  689,  Hoven 
V.  Assurance  Corp.,  93  Wis.  201,  67  N.  W.  46,  32  L.  R.  A.  388, 
and  Fritchie  v.  Extract  Co.,  197  Pa.  401,  47  Atl.  351,  the  liability  of 
the  insurer  was  sought  to  be  reached  by  process  of  garnishment.     In 
Insurance  Co.  v.  Fordyce,  62  Ark.  562,  36  S.  W.  1051,  54  Am.  St. 
Rep.  305,  and  Casualty  Co.  v.  Fordyce,  64  Ark.  174,  41  S.  W.  420, 
the  question  was  whether  the  insured  must  first  pay  the  judgment  in 
favor  of  the  employe,  before  an  action  could  be  brought  upon  the 
policy.     In  Fenton  v.  Casualty  Co.,  36  Or.  283,  56  Pac.  1096,  48  L. 
R.  A.  770,  the  action  against  the  insurer  by  a  surgeon  who  had  at- 
tended an  injured  employe  was  allowed  because  of  an  assignment  to 
the  plaintiff  of  the  cause  of  action.     In  Embler  v.  Insurance  Co.,  158 
N.  Y.  431,  53  N.  E.  212,  44  L.  R.  A.  512,  the  decision  was  that  a  suit 
could  not  be  maintained  by  an  assignee  of  the  administratrix  of  an 
employe  who  had  been  killed  by  an  explosion,   against  the  insurer, 
upon  a  policy  issued  to  the  employer.     The  decision  was  put  by  the 
majority  of  the  court  upon  the  ground  that  there  was  no  such  rela- 
tion between  the  employe  and  his  employer,  and  no  such  privity  on 
the  part  of  the  employe  to  the  contract  of  insurance,  as  gave  him  or 
his  representatives  a  right  of  action  upon  the  policy  of  insurance.     It 
is  to  he  noted  that  this  policy  was  written  before  the  enactment  of 
the  New  York  statute  of  1892  (chapter  690,  §  55),  which  authorizes 
an  employer  to  take  out  insurance  for  the  benefit  of  his  employes. 
The  case  of  Beacon  Lamp  Co.  v.  Travelers'  Ins.  Co.  (Nov.,  1900)  61 
N.  J.  Eq.  59,  47  Atl.  579,  was  overruled  by  the  court  of  last  resort, 
which  held  that  the  obligation  of  the  insurer  was  with  the  employer 
only,  and  left  the  person  who  had  the  claim  for  damages  on  account 
of  the  accident  to  rely  only  on  obligations  from  the  insurer  to  the 
employer  existing  when  the  bill  was  brought.     Insurance  Co.  v.  Moses, 
63  N.  J.  Eq.  260,  49  Atl.  720,  92  Am.  St.  Rep.  663 ;  Hunt  v.  Associa- 
tion, 68  N.  H.  305,  38  Atl.  145,  38  L.  R.  A.  415,  73  Am.  St.  Rep. 
602,  grew  out  of  the  reinsurance  by  a  solvent  company  of  a  part 
of  a  fire  risk  reinsured  in  part  by  a  company  which  became  insolvent 
after  the  loss  by  fire;    and  the  right  of  the  original  insurer  to  the 
fund  was  a  right  in  equity  to  avail  itself  of  a  then  subsisting  pro- 
vision made  by  his  insolvent  debtor,  the  first  reinsurer,  for  the  pay- 
ment of  the  claim  of  the  original   insurer.     Neither  that   case  nor 
those  of  the  class  of  Locke  v.  Homer,  131  Mass.  93,41  Am.  Rep.  199, 
or  Keller  v.  Ashford,  133  U.  S.  610,  10  Sup.  Ct.  494,  33  L.  Ed.  667, 
'  are  put  upon  the  ground  of  a  trust. 

If  the  usual  result  of  insurance  against  liability  for  damages  re- 
specting accidental  injuries  to  others  was  to  give  money  to  the  in- 
sured, when  he  was  not  obliged  to  compensate  the  person  injured. 


RIGHTS    OF    INJURED    PERSON   IN    INSURANCE   FUND  485 

it  would  be  for  the  legislature  to  say  whether  such  insurance  should 
not  be  allowed  as  contrary  to  public  policy.  The  insurance  written 
by  the  policy  held  by  Atkins  was  in  fact  permitted  by  our  statutes, 
and  for  his  own  benefit,  and  not  for  that  of  the  persons  whose  in- 
juries might  give  them  a  claim  against  him.  The  fact  that,  owing 
to  his  bankruptcy,  the  plaintiff's  claim  cannot  be  satisfied,  although 
he  has  in  fact  received  the  insurance  money,  or  a  part  of  it,  cannot 
make  that  a  trust  fund  which  neither  the  statute  which  allowed  the 
contract,  nor  the  contract  which  created  the  fund,  impressed  with 
a  trust.  Atkins  had  as  full  a  right  to  settle  with  the  company,  and 
to  use  in  his  business  the  proceeds  of  the  settlement,  as  to  deal  at 
his  will  with  any  other  part  of  his  property;  and  the  company  had 
a  right  to  settle  with  him  as  it  did. 
Bill  dismissed,  with  costs. 


WEST  PUBLISHING   CO.,   PRINTERS,   ST.  PAUL,    MINN. 


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